Bank of America strategists, in their most recent Flow Show note, argue that the current strain on Wall Street will probably persist until President Donald Trump’s approval rating improves. The team framed the market turmoil as an adjustment process stemming from simultaneous extremes in positioning, liquidity and politics.
Michael Hartnett and colleagues wrote that markets remain caught in a "painful and overdue unwind," a dynamic that has amplified selling across previously crowded long positions. The strategists summed up their stance succinctly: "We are long Main St, short Wall St until Trump approval rating up on policy pivot to address affordability."
Technical anchors and vulnerable assets
The note lists technical thresholds the team expects to hold for a number of higher-risk, price-sensitive assets. These include the technology-focused XLK ETF (NYSE:XLK) near $133, Bitcoin around $58,000 and gold approximately $4,550 an ounce. The strategists view movements toward those levels as part of a corrective process rather than the start of a new bull run.
Hartnett highlighted a recent "painful price collapse of Wall Street longs (Mag 7, crypto and precious metals) versus shorts (small cap, staples, energy)" and attributed the squeeze to a combination of peak positioning, peak liquidity - characterized as expectations of fewer rate cuts and more rate hikes - and peak politics, reflected in low approval for an equity-friendly Trump.
Leadership shift and 2026 positioning
BofA strategists say a broader leadership rotation appears to be emerging, describing it as a flip from "U.S. exceptionalism" to "global rebalancing." Within that framework, they identify international equities, China’s consumer sector and commodity-producing emerging markets as the preferred trade ideas for 2026.
Fund flows and market positioning
The report breaks down recent fund flow data. For the week ended Feb. 4, one-year market funds recorded inflows of $87.2 billion. Equities attracted $34.6 billion, while bonds drew $23 billion. Gold experienced its first weekly outflow since November, amounting to $800 million, and crypto funds saw $1.5 billion leave, the largest weekly exit since late 2025.
Regionally, the flow picture showed continued interest in U.S. equities, which recorded a second consecutive week of inflows totaling $5.8 billion. Europe posted its largest weekly inflow since April at $4.2 billion, while emerging markets recorded $7.8 billion in returns. South Korea stood out with its largest weekly equity inflow on record at $5.2 billion.
By sector, investors funneled $6 billion into Technology funds and $4.2 billion into Energy. Utilities, by contrast, experienced the steepest outflows in several months.
Outlook and context
While the strategists acknowledge elevated near-term volatility, they characterize the moves as part of a necessary market recalibration. The team’s conclusions tie together technical price behavior, significant fund flows and political sentiment as co-drivers of current market conditions.
Key points
- Market pressure likely to persist until a rebound in President Trump’s approval rating, per BofA strategists.
- Strategists expect technical support levels to hold for XLK at $133, Bitcoin near $58,000 and gold near $4,550 an ounce.
- Fund flows favor international markets, China’s consumer names and commodity-producing emerging markets; Technology and Energy saw notable inflows while Utilities faced outflows.
Risks and uncertainties
- Political risk - Low approval for an equity-friendly president could further depress risk appetite and accelerate unwinds, affecting equity sectors and speculative assets.
- Liquidity and rates - Expectations of fewer rate cuts and potential for more rate hikes could tighten liquidity, pressuring rate-sensitive and highly positioned trades including technology and crypto.
- Concentration risk - Large flows into specific markets and sectors leave portfolios vulnerable if technical support levels fail, particularly for frothier assets.