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Bank of America: In summer, investors should shift from exiting risk assets to taking a defensive stance, and focus on long-duration government bonds, high-yield stocks, and the US dollar

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Mars Finance News: On July 19, Michael Hartnett, Bank of America’s chief investment strategist, issued the latest warning. The bank’s proprietary “bull-bear indicator” has surged to a historical extreme level of 9.6. The latest survey of fund managers shows that today’s investor optimism is built on four core assumptions—no hard landing for the economy, no further rate hikes by the Federal Reserve, no cuts to AI capital expenditures, and Democrats not sweeping Congress in the midterm elections. Hartnett calls this combination “no landing, no hike, no cut, no sweep,” which is precisely the fundamental reason the market is almost out of short positions. The latest data on fund flows also confirms the market’s extreme euphoria: U.S. equities saw a net inflow of $55.8 billion, while money market funds recorded a massive net outflow of $119.6 billion, the largest weekly cash withdrawal since April 2026; the technology sector accumulated net inflows of $48.8 billion over three weeks, setting a historical record. Hartnett described this as institution-led, all-out momentum chasing. Hartnett advises that in the summer investors should decisively reduce risk assets and rotate into duration Treasuries, defensive sectors, high-dividend stocks, and the U.S. dollar. He lists the U.S. large-cap tech ETF MAGS as a key watch metric: if MAGS falls below $65, it will weigh on the entire cycle sector complex; if it breaks above $70, it will signal a re-entry opportunity. The biggest tail risk is that once mega-cap technology companies announce cuts to AI capital expenditures and that move fails to push Mag7 to fresh highs, the resulting sharp negative shock to growth and asset prices will catalyze large-scale shorting by banks, brokers, and industrial stocks.
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