Michael Hartnett, Chief Investment Officer at Bank of America, has declared the conclusion of the bank's long-standing sell signal from its bull & bear indicator. However, he simultaneously cautioned that genuine "buy-the-dip signals" have yet to materialize, advising investors against premature bottom-fishing.
In his latest Flow Show report, Hartnett pointed out that a phase of "policy panic" has commenced, characterized by oil prices surpassing $100 per barrel, the 30-year U.S. Treasury yield rising to 5%, and the S&P 500 falling below the 6600-point level.
Bank of America's Bull & Bear Indicator has dropped sharply from 8.4 to 7.4, marking its lowest level since July 2025 and signaling the official end of the sell signal that began on December 17 of last year.
Hartnett emphasized, however, that the timing for contrarian buying is not yet ripe until true signs of capitulation by bulls or macro panic emerge—specifically, significant downward revisions to GDP and earnings per share (EPS) expectations. 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.
While the sell signal has ended, it is still premature to discuss "buying the dip." The sharp decline in the Bull & Bear Indicator 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. This change formally concludes the sell signal initiated last December.
Historically, since 2002, the Bull & Bear Indicator has triggered 32 contrarian "sell signals." 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 tech, 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 peaks, with 28% (143 stocks) down over 20%. Significant structural damage beneath the index surface has been evident since the peak in liquidity and AI capital expenditure optimism late last October.
What would trigger a genuine "buy signal," and what are the key thresholds? Hartnett detailed the technical pathway for transitioning from a sell to a buy signal. He indicated that the first potential trigger would be the Bank of America Global Breadth Rule—this buy signal 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, this indicator read -39%, and it likely deteriorated further after Friday's close. Hartnett estimates that triggering this buy signal would require additional declines of approximately 2% in Asia-Pacific equities, about 3% in emerging markets, and roughly 14% in Latin American markets. The S&P 500 has not yet officially entered a "correction" (defined as a 10-20% drop from its peak); that threshold corresponds to an index level around 6300 points. As of last Friday's close, the index was less than 100 points away from this critical level. In other words, the market still has some distance to go before triggering a true technical buy-the-dip signal.
Given this, Hartnett explicitly advises a stance of "no rush, no greed." He stresses that a genuine contrarian buying opportunity requires signals of "bull capitulation" and panic-level downward revisions in macroeconomic data—neither of which is currently present.
Gold is highlighted as a core beneficiary of a potential dollar bear market and policy shifts. Hartnett warns that bear markets in presidential credibility have historically coincided with dollar bear markets, citing examples during the administrations of Nixon, Carter, and George W. Bush.
He further elaborated 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 weaken. In such a scenario, a dollar bear market would re-emerge, subsequently reigniting bull markets for gold and international stocks.
Looking further ahead, Hartnett suggests that if policy evolves towards a framework where "AI = Universal Basic Income = Yield Curve Control," both gold and Bitcoin would benefit from this structural policy shift.
Hartnett outlines three market scenarios. In a bear case, widening credit spreads and falling equities persist until recession and rate hike probabilities stop rising, threatening the consensus for 19% global earnings growth. A prolonged Iran conflict could accelerate a shift from Q4's "prosperity trade" to Q1's "stagflation trade," ultimately morphing into a Q2 "recession trade," where going long U.S. Treasuries and shorting cyclical stocks would dominate.
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 software, private equity, and consumer finance as the best contrarian long opportunities for Q2, noting these sectors have deviated significantly from their 50-day and 200-day moving averages.
In Hartnett's base-case scenario, policy panic is highly likely as authorities seek to avoid recession. Based on this, he views the best trades as being long a steepening yield curve and consumer stocks. Simultaneously, with the resurgence of a dollar bear market and global fiscal expansion—particularly large-scale defense and energy spending in Europe—bullish trends for gold and international equities are expected to return opportunistically.
Hartnett concluded with two market axioms that precisely summarize the current environment:
The most painful move for the market would be either a new high driven by private credit or a new low led by semiconductors. In a strong market, investors often cover short positions when the index breaks below the 200-day moving average; but in a weak market, this is when they sell their long positions.
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