Key Takeaways:
US equity funds suffered their largest weekly outflow in four months as Bank of America's Bull & Bear Indicator climbed deeper into extreme bullish territory, keeping a sell signal active for a sixth straight week.
US stock funds saw $172 billion in outflows in the week through July 1, the largest weekly redemption since March 2026, Bank of America data showed.
"The Bull & Bear Indicator at 9.5 is flashing the same warning it has since May 20, and historically that has preceded a 2 percent to 3 percent decline in global equities over the following two to three months," Michael Hartnett, chief investment strategist at Bank of America, said.
The indicator rose from 9.1 the prior week, driven by rising hedge fund long exposure, a pickup in high-yield bond inflows, and continued money flowing into technology and health-care stocks. The Philadelphia Semiconductor Index tumbled 11 percent over two trading sessions this week as concerns about stretched AI valuations triggered a selloff in chip stocks. Investment-grade bonds attracted $17.2 billion, extending a 13-week inflow streak, while high-yield bonds drew $3.4 billion, the most since May 2025.
The rotation out of equities and into fixed income signals that institutional investors are reducing risk exposure after a first half that saw the Philadelphia Semiconductor Index surge 88 percent and AI-related assets lead global markets. Hartnett noted that since 2002, the Bull & Bear Indicator has triggered 17 sell signals, with global stocks falling an average of 2 percent to 3 percent in the subsequent two to three months and a maximum drawdown of 15 percent to 20 percent.
The outflows were broad-based across equity categories. Mutual funds recorded $18.8 billion in net redemptions, while exchange-traded funds saw $5.2 billion in inflows, only partially offsetting the selling. Technology funds alone drew $14.3 billion for the week, bringing year-to-date inflows to a record $152 billion pace.
The selloff in semiconductors accelerated this week, with the Philadelphia Semiconductor Index dropping 11 percent in two days. The decline was fueled by growing skepticism about AI-related valuations, with JPMorgan strategists warning that the extreme outperformance of US semiconductor stocks relative to hyperscale cloud companies had created an unsustainable valuation gap that is likely to narrow.
Cross-asset flows reinforced the risk-off tone. Gold posted its seventh consecutive week of outflows at $3 billion, the longest streak since March 2024. Cryptocurrency products saw $2 billion in redemptions, the largest weekly outflow since November 2025. Energy funds lost $3.2 billion, the most since July 2024, and materials funds shed $6.8 billion, the largest outflow since March 2026.
Japan emerges as a destination
While US equities saw broad selling, Japanese stock funds attracted $1.9 billion, the largest weekly inflow in seven weeks, as investors rotated into one of the few major markets still showing momentum. Global bonds overall drew $29.1 billion, marking 62 consecutive weeks of inflows, while money market funds absorbed $55 billion.
Bank of America's private client division, which manages about $4.5 trillion in assets, showed a cautious posture. Its portfolios held 65.4 percent in stocks, 17.6 percent in bonds and 9.8 percent in cash. Private clients were net redeemers of equities by the most in four weeks, and they extended duration in fixed income by rotating out of Treasury bills for a fifth straight week while adding to intermediate Treasury notes.
This article is for informational purposes only and does not constitute investment advice.
