Bank of America strategist Michael Hartnett warned that equity markets may need two distinct external events to sustain a meaningful advance from already elevated levels.
In his latest Flow Show write-up, Hartnett outlined the pair of scenarios he views as necessary to change the market trajectory. The first is a substantive shift in the Middle East that would assure abundant future oil supplies and trigger a significant fall in oil prices. The second is a U.S.-China trade breakthrough - specifically, a Trump-Xi agreement in April - that would reduce tariffs and help improve President Trump’s approval rating.
Hartnett highlighted an unusual mix of signals coming from market positioning and profit expectations. He described positioning as “extreme bull” while consensus profit forecasts imply a boom, and he summarized the conflict this way: positioning and profits both suggest selling stocks and credit, while policy expectations - notably tax and rate cuts - encourage buying pullbacks.
The Bank of America Bull & Bear Indicator remained deep in bullish territory, easing slightly to 9.4 from 9.5 but still in what the firm classifies as “extreme bull.” Hartnett said the high reading reflects persistent inflows into global equity exchange-traded funds and technology-focused funds, together with broad strength across global equity markets. He noted that historically, readings at these levels have tended to precede weaker short-term returns. When the indicator previously exceeded 9.5, the median three-month drawdown was roughly 4.3% for the MSCI All-Country World Equity Index, 5.5% for the S&P 500 and 8.6% for the Nasdaq.
Fund flow data continue to show strong appetite for risk. In the most recent week, global equities attracted $35.2 billion in inflows, bonds took in $26.4 billion and cash funds saw $23.8 billion of new money. Gold funds experienced $1.4 billion of outflows - the largest weekly withdrawal in four months - while crypto funds recorded $0.8 billion of outflows.
Other notable flow patterns highlighted by the bank include a record four-week inflow into international equities totaling $64.6 billion, and what it describes as the largest six-week inflow ever into Korean equities.
Examining regional allocation, the firm noted that U.S. stocks captured only $26 of every $100 entering global equity funds so far in 2026 - the smallest share since 2020. Hartnett interpreted this as a fading of the U.S. exceptionalism theme, driven more by reduced relative inflows into U.S. equities than by absolute outflows.
What this means
Hartnett’s view frames current market behavior as the result of crowded bullish positioning and high profit expectations, offset by policy hopes. Absent the two specific exogenous developments he lists - a stabilizing change in Middle East oil dynamics and a U.S.-China trade accord - the strategist suggests upside for risk assets may be constrained.