“Overbought” Signal Flashing! BofA Warns: Global Stocks Face Downside Risk — Gold Remains Core Holding

Recently, Bank of America strategists noted that investor optimism has reached extreme levels. Their bull/bear indicator rose from 9.2 to 9.4 — indicating that the sell signal for risk assets continues to flash.

 

BofA attributes the surge in optimism to “strong gains in global equity indices, high all-in bullish positioning, and solid credit market technicals,” which have offset recent outflows from equity funds.

 

The team led by BofA Chief Investment Strategist Michael Hartnett pointed out that 89% of the MSCI World equity index is now trading above both its 50-day and 200-day moving averages — putting the market in BofA’s defined “overbought” zone, which typically signals elevated downside risk for equities.

 

In the current environment, Hartnett reiterated several key 2026 investment themes: continued preference for long-duration bonds to hedge deflation and potential deleveraging risks, while maintaining a structural bullish stance on international assets (especially China).

 

Gold remains a core allocation — despite recent sharp volatility in prices, Hartnett still views it as an important hedge against dollar depreciation.

 

Meanwhile, U.S. mid-cap stocks are seen as beneficiaries of domestic economic momentum.

 

On the other hand, Hartnett remains bearish on the U.S. dollar and investment-grade tech credit.

Investors shifting toward defensive plays

Fund flow data from the past week shows investors gradually tilting toward defensive and hard assets.

 

Last week:  

Bond funds attracted $17 billion in inflows.  

Money market funds saw $10 billion inflows.  

Gold funds pulled in $6.7 billion — the largest weekly inflow since October last year.  

 

In contrast:  

Equity funds experienced $15.4 billion outflows.  

Crypto products lost about $400 million.

 

By sector:  

Materials funds recorded a record $11.8 billion inflow.  

Energy funds saw the largest inflow since October 2023, at $2.3 billion.

 

U.S. equity funds returned to inflows of $9.2 billion last week, while Europe saw its first outflows in seven weeks, and emerging markets continued to experience outflows.