US stocks experienced the largest single-week outflow of funds in nearly four months, according to Bank of America's Hartnett: "Sell signal" still flashing.

The U.S. stock funds are experiencing the fastest capital outflow this year, while at the same time, the flagship sentiment indicator of Bank of America Securities has risen to an extremely bullish level, with the warning signals continuously flashing. According to the Wind trading platform, as reported by Bank of America's latest weekly report, in the week ending July 1, U.S. stock funds saw a outflow of $17.2 billion, marking the largest weekly net redemption since March 2026. This is the second consecutive week of net outflows for U.S. stock funds, signaling a clear reversal of the strong inflow trend seen since the beginning of the year. At the same time, the Bull & Bear Indicator of Bank of America has further risen from 9.1 to 9.5, remaining in the "extremely bullish" range that was triggered on May 20 and has not been lifted since. While funds are being withdrawn from U.S. stocks, investors are turning their focus to investment-grade bonds and high-yield bonds. Investment-grade bonds attracted $17.2 billion in inflows for the week, marking the 13th consecutive week of net inflows; high-yield bonds attracted $3.4 billion, the largest weekly inflow since May 2025. Within the stock market, funds continue to concentrate on the technology sector, with technology funds receiving $14.3 billion in inflows for the week, with total inflows year-to-date expected to reach a historical record of $152 billion. Amidst the turmoil in chip stocks, concerns about AI valuations are intensifying the sell-off. Against the backdrop of the outflow of funds from U.S. stocks, the semiconductor sector is under particular pressure. This week, the chip stocks have been hit hard by continued questioning of high valuations related to AI, with the Philadelphia Semiconductor Index falling by 11% over the past two trading days. Strategists at JPMorgan Chase pointed out that the extreme outperformance of U.S. semiconductor stocks compared to the super-sized AI cloud computing firms has created an unsustainable valuation gap, which is expected to narrow in the end. Looking at the quarterly performance, the Philadelphia Semiconductor Index surged by 88% in the second quarter of this year, while the Korea Composite Stock Price Index (KOSPI) rose by 64%, the biotechnology sector rose by 24%, small-cap stocks rose by 21%, banking stocks rose by 17%, and AI-related assets led the global market. However, energy, gold, bitcoin, and defense sectors significantly underperformed during the same period, with oil prices falling by 31% and bitcoin falling by 14%. The Bull & Bear Indicator has risen to 9.5, the "sell signal" has persisted for six weeks. In the latest report, Bank of America's Chief Investment Strategist Michael Hartnett stated that the Bull & Bear Indicator rose from 9.1 to 9.5 this week, with the upward DRIVE coming from increased long positions by hedge funds (reduction of short positions in S&P 500 futures and long positions in VIX futures), a rebound in inflows to high-yield bonds, and inflows into the technology and healthcare sectors. The indicator triggered a "sell signal" on May 20 and is currently still active. Bank of America data shows that since 2002, the indicator has triggered a total of 17 "sell signals", with global stock markets experiencing an average decline of 2% to 3% in the following 2 to 3 months. The accuracy rate of the signal triggering is around 60%, and the historical maximum drawdown ranges from 15% to 20%. Looking at the components, the Fund Manager Survey (FMS) positioning is at the 100th percentile, indicating "extremely bullish"; bond fund flows are in the 85th percentile, also showing "extremely bullish"; stock fund flows are in the 80th percentile, indicating a "bullish" range; hedge fund positioning is at the 79th percentile, credit market technicals are at the 77th percentile, all pointing to a build-up of bullish sentiment. Capital rotation: Japanese stocks favored, commodities and gold under pressure While funds are flowing out of U.S. stocks, some funds are flowing into overseas markets, with Japanese stock funds attracting $1.9 billion for the week, marking the largest weekly inflow in nearly seven weeks. From a more macro perspective of asset allocation, there was a net outflow of $13.9 billion from global stocks in the week, with mutual funds seeing net redemptions of $18.8 billion and ETFs having net inflows of $5.2 billion. Bond markets continue to attract funds, with a total inflow of $29.1 billion, marking the 62nd consecutive week of net inflows to bond funds. Money market funds attracted $55 billion for the week. Commodities and gold continued to be under pressure. Gold saw a net outflow of $3 billion for the week, marking the seventh consecutive week of outflows since March 2024. Cryptocurrencies saw a net outflow of $2 billion, marking the largest weekly outflow since November 2025. Energy funds saw outflows of $3.2 billion, the largest weekly outflow since July 2024; commodity funds saw outflows of $6.8 billion, the largest outflow since March 2026. Bank of America Private Clients: Extend duration, reduce equity holdings The positioning data from Bank of America's Private Clients division (managing assets of approximately $4.5 trillion) also reveals a cautious signal. Currently, the asset allocation shows that equities account for 65.4%, bonds account for 17.6%, and cash accounts for 9.8%. In the past week, net redemptions of equity assets by private clients were the largest in nearly four weeks. In the fixed income segment, private clients are clearly opting for lengthening duration: U.S. Treasury T-bills saw net outflows for the fifth consecutive week, while medium-term Treasury notes (T-notes) continued to see net inflows. Over the past four weeks, private clients have increased their holdings in commodities, healthcare, and municipal bonds through ETFs, while reducing their holdings in Japanese stocks, consumer staples, and financial sectors. Since the beginning of the year, private clients' holdings in equity ETFs have increased by 5.4%, but the growth rate in the past week has slowed to 0.1%, indicating a significant cooling of short-term buying interest. This article is a repost from "Wall Street Journal", edited by GMTEight: Chen Siyu.