Bank of America strategists said investor sentiment has reached an extreme bullish reading, with the firm’s bull-and-bear indicator rising from 9.4 to 9.7, its highest level since 2021. The team, led by Michael Hartnett, pointed to a broader equity rally, heavy inflows into high-yield bonds and tighter credit spreads as signs of rising optimism. They said investors should reduce exposure to risk assets and consider defensive assets, duration and the U.S. dollar. Hartnett said the market is still in a summer phase of “de-risking/rotation,” not “re-risking.”
BofA says sentiment has reached an extreme bullish reading
On Aug. 7, Bank of America strategists said investor optimism has reached an extreme level and that it is time to start lowering exposure to risk assets.
The team, led by Michael Hartnett, wrote in a report that the bank’s bull-and-bear indicator rose from 9.4 to 9.7, the highest reading since 2021.
Three signals behind the upbeat mood
They said the rally in equities has broadened, money has poured into high-yield bonds, and credit spreads have narrowed. In their view, those moves help explain the current level of bullishness.
The strategists said they favor defensive assets, arguing that such assets can help portfolios withstand potential negative shocks from the economy, monetary policy and artificial intelligence.
Hartnett said: “We are still in the summer ‘de-risking/rotation’ phase, not the ‘re-risking’ phase.”
Recommendation: cut risk exposure
He advised investors to reduce exposure to risk assets, or rotate into some defensive assets, duration assets and the U.S. dollar.
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