Michael Hartnett, Chief Investment Officer at Bank of America, has declared the end of a long-standing sell signal from the bank's Bull & Bear indicator. However, he simultaneously cautioned that a genuine "buy-the-dip signal" has not yet materialized, advising investors against rushing into the market. In his latest Flow Show report, Hartnett pointed out that with oil prices exceeding $100 per barrel, the 30-year U.S. Treasury yield rising to 5%, and the S&P 500 falling below 6600 points, a phase of policy-induced panic has commenced.
Bank of America's Bull & Bear indicator has dropped sharply from 8.4 to 7.4, reaching its lowest level since July 2025, marking the official conclusion of the sell signal that began on December 17 of last year. Nevertheless, Hartnett emphasized that the timing for contrarian buying is not yet ripe until clear signs of capitulation by bulls or macro panic—such as significant downward revisions to GDP and earnings per share expectations—are observed.
Regarding asset allocation, Hartnett's core view is becoming clearer: a bear market for the U.S. dollar is set to return, which will subsequently reignite bull markets for gold and international equities.
The sell signal has concluded, but it's premature to talk about "buying the dip." The sharp decline in the Bull & Bear Indicator from 8.4 to 7.4 was triggered by factors including deteriorating breadth in global equity indices, outflows from high-yield bonds and emerging market debt, and widening credit spreads for high-yield and AT1 bonds. These changes mark the official end of the sell signal initiated last December 17. Since 2002, this indicator has triggered 32 contrarian "sell signals." Historical data shows that in the three months following the end of such signals, the average returns for the S&P 500 and the MSCI All Country World Index (ACWI) were a mere 1%. This indicates that the conclusion of a sell signal does not in itself provide a strong impetus for buying; the market remains in a phase of uncertain direction, making talk of a comprehensive "buy-the-dip" strategy premature.
Hartnett also reviewed the "pain trades" in U.S. stocks since the first quarter: short-term Treasuries outperforming AI mega-cap tech bonds, the U.S. dollar outperforming Bitcoin, crude oil stronger than gold, the energy sector outperforming technology, and large-cap stocks underperforming small and mid-caps. Concurrently, 67% of S&P 500 constituents (336 stocks) have fallen more than 10% from their highs, and 28% (143 stocks) have declined over 20%. Since the peak of liquidity and AI capital expenditure optimism in late October last year, the underlying structural damage beneath the index surface has become quite significant.
How is a "buy-the-dip signal" triggered, and what are the key thresholds? Hartnett detailed the technical pathway for transitioning from a sell signal to a buy signal. He indicated that the first potential trigger for a "buy signal" would likely be the Bank of America Global Breadth Rule. This rule is activated when the net values of 88% of global equity indices simultaneously fall below their 50-day and 200-day moving averages. As of last Monday, the reading for this indicator was -39%, and it may have declined further after Friday's close. Hartnett estimates that to trigger this buy signal, Asia-Pacific equities would need to fall approximately another 2%, emerging markets another 3%, and Latin America another 14%. The S&P 500 has not yet officially entered a "correction" (defined as a 10% to 20% decline from its peak), a threshold corresponding to an index level around 6300 points. As of last Friday's close, the index was less than 100 points away from this key level. In other words, the market still has some distance to go before a genuine technical buy signal appears. Until then, Hartnett explicitly advises "no rush, no greed," stressing that a true contrarian buying opportunity requires signals of "bull capitulation" and panic-driven downward revisions to macroeconomic data, neither of which are currently present.
Gold stands out as a core beneficiary of a potential dollar bear market and policy shifts. Hartnett warned that bear markets in presidential credibility have historically coincided with dollar bear markets—a pattern observed during the administrations of Nixon, Carter, and George W. Bush. He further suggested that if former President Trump's credibility suffers structural damage due to the Iran situation, his ability to verbally support Wall Street and attract foreign direct investment into the U.S. would be weakened. In such a scenario, a dollar bear market would re-emerge, paving the way for renewed bull markets in gold and international stocks. Looking further ahead, Hartnett believes that if policy direction shifts towards a scenario where "AI = Universal Basic Income = Yield Curve Control," both gold and Bitcoin would benefit from this structural policy change.
Hartnett outlines three market scenarios. In a bear case, credit spreads continue to widen and equities keep falling until recession risks and expectations of rate hikes no longer increase, threatening the consensus for 19% global earnings growth. A prolonged conflict involving Iran could accelerate a shift from Q4's "prosperity trade" to Q1's "stagflation trade," ultimately morphing into a Q2 "recession trade," where going long on U.S. Treasuries and shorting cyclical stocks would become the dominant strategy. In a bull case, the key catalyst would be an easing of financial conditions, potentially through coordinated global policies to lower oil prices, mitigation of systemic risks in private credit, and a steepening yield curve. Hartnett identifies the best Q2 contrarian long positions as software, private equity, and consumer finance—sectors that have already shown significant deviation from their 50-day and 200-day moving averages.
In Hartnett's base-case scenario, policy panic is highly likely, aimed at avoiding an economic recession. Based on this premise, he views the best trades as being long on yield curve steepening and consumer stocks. Simultaneously, with the anticipated return of a dollar bear market and global fiscal expansion—particularly large-scale defense and energy spending in Europe—bull markets in gold and international equities are expected to re-emerge opportunistically.
Hartnett concluded with two market axioms that aptly summarize the current environment: The most painful market move would be either a new high driven by private credit or a new low led by a sell-off in semiconductors. In a strong market, when an index breaks below its 200-day moving average, investors often cover their short positions; but in a weak market, that's precisely when they sell their long holdings.
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