Market sentiment in U.S. equities has reached extreme optimism levels, with Bank of America cautioning that risk assets face near-term correction pressures.

BofA Securities' latest The Flow Show report indicates its core sentiment gauge, the Bull & Bear Indicator, has risen to 8.0, formally triggering a contrarian sell signal for risk assets. This marks the 17th such sell signal from the indicator since 2002. Historical data shows that, following such signals, global equities have on average declined by 2% to 3% over the subsequent two to three months, with maximum drawdowns potentially reaching 15% to 20%.

Strategist Michael Hartnett noted in the report that the current market exhibits "bubble characteristics" featuring strong price momentum, retail investor euphoria, and low volatility. Market concentration, represented by the "AI Big 10" (the Magnificent Seven plus Broadcom, AMD, and Micron), has approached 48%, surpassing levels seen during the "Roaring Twenties," the "Nifty Fifty" era of the 1970s, the Japanese bubble of the 1980s, and the tech bubble of the 1990s.

Concurrently, this week's fund flows displayed significant divergence: Technology stocks saw a net inflow of $9 billion, the largest weekly inflow since October 2025; U.S. Treasuries attracted a net inflow of $10.8 billion, the highest in nearly nine weeks. In contrast, cryptocurrencies experienced their largest weekly net outflow of $1.5 billion since February 2026, emerging market equities saw net outflows for the sixth consecutive week, and European equities also suffered their sixth straight week of capital withdrawals.

**Bull & Bear Indicator Triggers Sell; All Sentiment Gauges Point to Overbought Conditions** The BofA Bull & Bear Indicator rose this week from 7.8 to 8.0, officially crossing the threshold that triggers a contrarian sell signal. Examining its components: the Fund Manager Survey (FMS) positioning component is at the 95th percentile, indicating "extreme bullishness"; hedge fund positioning, bond fund flows, and credit market technicals are all in the 74th to 75th percentile range, showing "bullish" conditions; global equity market breadth stands at the 74th percentile.

BofA's concurrently tracked FMS Cash Indicator shows fund managers' cash holdings have fallen to 3.9%, which also triggers a sell signal, and this signal has persisted for four weeks. The report states that the record monthly increase in FMS equity allocations, combined with declining cash levels, is the core driver pushing the Bull & Bear Indicator higher.

Data from BofA's private client division further corroborates this extreme optimism. As of the latest statistics, assets under management for BofA private clients total $4.5 trillion. Within these portfolios, equity allocations have risen to 65.7%, a record high; bond allocations have fallen to 17.3%, the lowest since March 2022; cash allocations have dropped to 9.9%, also a record low.

**Fund Flows: Tech and Treasuries Attract Capital; Emerging Markets and Europe See Sustained Outflows** Global fund flows this week broadly presented a pattern of "strength in both bonds and tech, with sustained pressure on emerging markets and Europe."

In bonds, net inflows totaled $30.5 billion, marking the 56th consecutive week of net inflows. U.S. Treasuries specifically saw net inflows of $10.8 billion, the highest in nearly nine weeks. Investment-grade bonds have seen net inflows for seven consecutive weeks, while TIPS have seen inflows for 16 straight weeks.

In equities, net inflows this week were $2.4 billion, with ETFs attracting $20.6 billion in net inflows while actively managed mutual funds saw $18.1 billion in net outflows. Technology stocks saw a net inflow of $9 billion, the largest since October 2025. U.S. equities have seen net inflows for eight consecutive weeks, the longest such streak since December 2025.

In stark contrast, emerging market equities saw net outflows of $7.9 billion this week, the sixth consecutive week of outflows and the longest such streak since November 2024. European equities saw net outflows of $2.3 billion, also for six consecutive weeks, the longest streak since February 2025. Financial stocks saw net outflows of $2.4 billion, the largest in nearly ten weeks. Materials stocks saw net outflows of $2.9 billion, the largest in nearly eight weeks. Cryptocurrencies saw net outflows of $1.5 billion, the largest weekly outflow since February 2026.