Bank of America Warning: 70% Bear Market Signal Triggered in US Stocks, Market Approaching Top

BlockBeats News, June 9th. Bank of America Securities stated that investors should remain cautious on U.S. stocks as more and more bearish signals indicate that the market is approaching a top. In a report dated June 5th, the strategist team led by Savita Subramanian wrote that about 70% of bearish signals have been triggered, consistent with historical market peak levels. Among 20 valuation indicators of the S&P 500 Index, 17 show "statistically significant overvaluation," with 8 indicators even higher than during the Tech Bubble. Furthermore, high P/E ratio stocks have significantly outperformed low valuation stocks, a sign of "excessive speculation." Within the tech sector, the performance gap between the top and bottom quintiles has widened to the highest level since February 2000.

The strong performance of the S&P 500 Index "masks intense internal differentiation," with the return difference between the top 10% and the bottom 10% of index constituents reaching the post-pandemic era's highest level in the past three months. While some tech stocks still have solid fundamentals, Subramanian pointed out: "Cash flow conversion rates have stalled, investment-grade bond and stock supply have increased, the share of stock buybacks in market cap has decreased, and the capital expenditure of mega-cap cloud computing companies is expected to approach 100% of operating cash flow by year-end, higher than 40% in 2023." (FX678)