Warning from Bank of America about a selling tsunami on Wall Street

SadaNews - Bank of America warns investors of the necessity to take profits on Wall Street, as 70% of the bank's bearish market indicators point to a sharp decline in prices.

Bank of America cautions about the increasing signals of a bearish market, confirming signs of reaching the peak of the upward cycle, with a recommendation to take profits now before any downturn occurs.

Strategic analysts at the bank, led by Savita Subramanian, noted in a recent client memo that 7 of the 10 bearish market indicators identified by the bank confirmed downward signals – five of which were activated in April, and two more turned red in May, according to Bloomberg, which was reviewed by Al Arabiya Business.

The bank's indicators cover a wide range of market data, including consumer confidence, stock performance expectations, levels of credit pressure, and conditions of credit tightening.

One indicator showed that stocks with a high price-to-earnings ratio significantly outperform those with a low price-to-earnings ratio, "which is an indicator of excessive speculation." Additionally, "long-term growth expectations" have exceeded levels that make stocks "more susceptible to disappointment."

Despite the S&P 500 index returning 8% so far this year, the benchmark is statistically considered high on 17 out of 20 metrics and is trading at high prices compared to technology bubble benchmarks on eight of them," according to strategic analysts.

In the technology sector, which dominates the S&P 500 in terms of market capitalization, analysts noted the greatest disparity, as the gap between the average stock prices of the best and worst performing five segments has reached its widest range since February 2000.

Strategic analysts indicated that the fundamentals of the technology sector are generally better than they were before the internet bubble burst, but many of these indicators are deteriorating. The cash flow conversion rate has stabilized, while the supply of credit and investment-grade stocks has increased. Stock buybacks as a percentage of market capitalization have declined, and capital expenditures as a percentage of operating cash flow for giant cloud computing companies are expected to approach 100% by the end of the year.

Analysts wrote: "Sharp price volatility may indicate increasing instability."

However, this does not mean that selected individual stocks cannot perform well.

The analysts added: "We see opportunities in stocks of the S&P 500 index, but not in the overall value-weighted index," indicating that the indicators suggest a broader decline.

Subramanian set her target for the S&P 500 index at the end of the year at 7100 points, which is below the 7400 points the index reached on Monday.