When Wall Street's Bull & Bear Indicator surged to its highest level since 2006, every market move carried an air of heightened risk. A month ago, this redesigned indicator by Bank of America's chief investment strategist Michael Hartnett issued a clear "sell" signal. It has since climbed further to 9.6—an extreme reading not seen since March 2006. Hartnett attributed this to a convergence of "peak positioning, peak liquidity, and peak inequality."
For 2026 asset allocation, Hartnett's conclusion is straightforward and stark: "long Main Street, short Wall Street." In other words, capital should shift away from crowded tech giants and cryptocurrencies toward small-cap stocks and international markets that stand to benefit from a recovery in the real economy.
The path of the recent market correction has closely followed Hartnett's warning. At the end of January, markets suddenly crashed, with software stocks suffering a record eight-day decline. Panic then spread rapidly: silver prices collapsed, Bitcoin recorded its largest drop since the FTX scandal, and multi-strategy fund deleveraging put basis trades under pressure. Ultimately, as Google and Amazon saw their shares plunge due to soaring capital expenditure guidance, the sell-off hit semiconductor stocks and the "Magnificent Seven" hard.
Notably, the trigger for the sharp decline had strong political undertones. Hartnett pointed out that former President Trump's mention of Kevin Warsh—seen by markets as a hawkish figure—as a potential nominee directly triggered a 30% weekly drop in Bitcoin. Since October 2025, the cryptocurrency market has lost $2 trillion in value, equivalent to 10% of U.S. consumer spending. Hartnett warned that this reversal in wealth effects will materially impact the economy in the coming months.
Why are tech giants, once considered safe havens, no longer secure? The core issue lies in the drastic change in their balance sheets. Markets expect Big Tech's AI-related capital expenditures to reach $670 billion in 2026, accounting for 96% of their combined cash reserves. In contrast, this ratio was only 40% ($150 billion) in 2023. This indicates a rapid shift from a "light asset" to a "heavy asset" model. These companies no longer possess the strongest balance sheets or unlimited stock buyback capacity. This fundamental shift in their business model poses the greatest threat to their market leadership in the 2020s.
In stark contrast is the "Main Street" logic. Hartnett believes the Trump administration, responding to voter discontent over living costs, will intervene in energy, healthcare, credit, and electricity prices to curb inflation. Combined with AI's cooling effect on the labor market, this policy direction is expected to lead to unexpectedly low inflation in 2026, benefiting small- and mid-cap stocks. Evidence is already emerging: since the new administration took office, the so-called "Bro Billionaire plays"—represented by NVIDIA, Meta Platforms, Inc., and Bitcoin—have risen only 6%, while small-cap stocks have gained 13%.
Recent EPFR data shows a dramatic style shift in markets. Safe-haven assets are falling out of favor: gold funds saw their first weekly net outflow since November 2025 ($800 million), while cryptocurrency funds experienced $1.5 billion in outflows—as if the $70 billion that flowed into crypto ETFs since the election never existed. Meanwhile, capital is rushing into undervalued markets: South Korean equities recorded their largest weekly inflow ever at $5.2 billion, and European stocks saw their biggest inflow since April 2025. Investment-grade bonds have now seen 41 consecutive weeks of net inflows.
Hartnett advised investors to watch key "bubble support levels": $133 for the tech ETF (XLK), $58,000 for Bitcoin, and $4,550 per ounce for gold. He also suggested that barring a systemic event—such as a dollar surge (DXY index reaching 100) and a related plunge in Treasury yields—the current decline should be viewed as a "massive, healthy, and long-overdue bubble purge."
Taking a longer view, Hartnett believes we are at a historical inflection point similar to 1971, 1989, or 2009. The 2025-2026 period marks the end of "American exceptionalism" and the beginning of a "global rebalancing." In the new cycle, winners will no longer be U.S. tech giants but international equities, Chinese consumer stocks, and commodity producers in emerging markets. For investors, the strategy is clear: amid the noise of bursting bubbles, seek out long-neglected assets closely tied to the real economy.
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