Bank of America Warns of Stock Market Bear Signal Intensity

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

The strong performance of the S&P 500 Index "masks significant internal divergences," with the return difference between the top 10% and bottom 10% of index constituents over the past three months reaching post-pandemic highs. While some tech stocks still exhibit healthy fundamentals, Subramanian noted: "Cash flow conversion has stalled, investment-grade bond and stock supply is increasing, the proportion of stock buybacks to market cap is declining, and the capital expenditure of mega-cap cloud companies as a proportion of operating cash flow is expected to approach 100% by year-end, up from 40% in 2023." (FXstreet)