Bank of America: Summer should see a rotation from risk assets to defense, with a focus on long-duration Treasuries, high-yield stocks, and the US dollar

BlockBeats News, July 19th. Michael Hartnett, Chief Investment Strategist at Bank of America, issued a new warning. The bank's proprietary "Bull & Bear Indicator" has surged to a historical extreme level of 9.6. The latest fund manager survey shows that current investor optimism is built on four core assumptions: no economic hard landing, no Fed rate hike, no AI capex cut, and no Democratic sweep in the midterm elections. Hartnett refers to this combination as "no landing, no hike, no cut, no sweep," which is the fundamental reason why the market has almost no more shorts. The latest fund flow data has also confirmed the extremely exuberant market sentiment: U.S. stock assets received a net inflow of $55.8 billion, money market funds saw a massive net outflow of $119.6 billion, the largest weekly cash exodus since April 2026; and the tech sector attracted a record $48.8 billion in three weeks. Hartnett describes this as an institution-led, relentless chase for momentum.

Hartnett advises a decisive exit from risk assets in the summer and a shift to long-duration government bonds, defensive sectors, high dividend stocks, and the U.S. dollar. He lists the U.S. mega-cap ETF MAGS as a key indicator to watch: if MAGS falls below $65, it will drag down all cyclical sectors; if it breaks through $70, it will signal a re-entry opportunity. The biggest tail risk lies in the scenario where the super-mega tech companies announce a cut in AI capex, and this fails to drive the Mag7 to new highs, triggering a significant negative impact on growth and asset prices. This will catalyze massive short positions in banks, brokers, and industrial stocks.