Bank of America: Bull and bear indicators fell back to 7.4. The selling signal is over, but the short-term side is still defensive

The Zhitong Finance App learned that Bank of America released the latest weekly capital flow report on October 15. The report points out that the Bank of America bulls and bears have declined, and the market selling signal previously triggered has come to an end. However, Bank of America has not turned to full optimism, which suggests that it will still be wary of market risks in the coming weeks. Global capital inflows from multiple types of assets set a record in 2026, but currency depreciation in emerging markets, Federal Reserve policies, and AI industry chain credit changes are still key variables affecting the market.

In 2026, major asset returns, crude oil led the way, and debt performance was weak

The report shows that in US dollars, the year-to-date performance of all major asset classes in 2026 is clearly divided. Crude oil led the way with a sharp increase of 70%; US stocks and global stocks also achieved positive returns, rising 13.1% and 10.2% respectively; the US dollar and cash also recorded positive returns.

Bonds, gold, and cryptocurrencies have weakened overall. Among them, high-yield bonds fell slightly by 0.9%, investment-grade bonds by 3.2%, government bonds by 4.4%, gold by 4.5%, and Bitcoin by 6.1%.

A record influx of venture capital

Bank of America pointed out that after experiencing extreme optimism during the summer period, market sentiment has cooled down, but asset allocation agencies have not lowered their risky asset positions. Multiple capital inflow data in 2026 set historical records:

The annualized inflow of global stocks was 1.3 trillion US dollars, of which the annualized inflow of US stocks was 636 billion US dollars; the annualized inflow of investment-grade bonds was 480 billion US dollars; the capital popularity of technology-themed funds remained high, with an annualized inflow of 19.6 billion US dollars; and the annualized inflow of Korean stocks was 76 billion US dollars. Consumer-themed funds are one of the few sectors that have experienced capital outflows, with an annualized outflow of 18 billion US dollars.

Judging from the weekly capital flow, there was a net inflow of 64.5 billion US dollars in stocks, a net inflow of 11.8 billion US dollars in bonds, and a slight inflow of 100 million US dollars in gold; there was an outflow of 600 million US dollars from cryptocurrencies, and an outflow of 53.1 billion US dollars on the cash side.

At the price level, bond yields declined in October. According to the report, this is expected to improve the market breadth of US stocks in the fourth quarter. Currently, many S&P 500 constituent stocks have retracted from 52-week highs: among them, 355 stocks have retraced 10%, 188 have retraced 20%, and 93 have retraced 30%.

Some emerging market currencies are approaching historic lows

Monetary pressure in emerging markets is prominent. The Indian rupee, Indonesian rupiah, and Turkish lira are at or near historic lows, and the yen is only 3% away from its 40-year low. The combined population of Japan, Turkey, Indonesia, and India reached 2 billion. Over the past five years, the Turkish lira depreciated 81%, the yen depreciated 28%, and both the Indian rupee and Indonesian rupiah depreciated 21%. The report mentioned that the sharp depreciation of the local currency has always been unpopular at the social level.

Bull and bear sentiment indicators have declined: the selling signal is over, but the conditions for bottoming out have not yet been met

The Bank of America Bull and Bear Index is an inverse sentiment indicator with a high level of market attention. The indicator range is 0-10. The rule is that a reading higher than 8 triggers a sell signal, and a reading below 2 triggers a buy signal. According to the latest report, the indicator fell from 8.1 to 7.4, officially ending the selling signal that began on May 26, and is currently in the neutral range.

Multiple factors led to a decline in indicators: the breadth of global stock markets weakened; hedge funds favoured bears in crude oil and S&P 500 futures; bullish sentiment in gold futures cooled; and capital flows from high-yield bonds and emerging market bonds weakened. The large inflow of capital into the technology sector has hedged these shortfalls to a certain extent.

According to market breadth data, 52% of global stock indexes are currently oversold, that is, prices are below the 50-day and 200-day EMAs. This ratio is the highest since April 2025. According to the Bank of America's reverse rule of breadth, only when 88% of the global index enters the oversold range will it trigger a buying signal for risky assets. The report judged that it would be difficult to meet this condition in the short term, unless the US, Taiwan, and Brazil stock markets showed another 6%-10% correction.

Bank of America's opinion: Maintaining defense in the short term, AI will still be the main line of the market in 2027

According to the report, the next 3-4 weeks should be biased towards risk aversion. Factors constraining the market include: the US real yield remains high at 3%; the Bank of America believes that the Federal Reserve needs to raise interest rates on October 28; the geographical conflict between the US, Iran, Russia, and Ukraine disrupts oil prices; the risk of a major victory for the Democratic Party in the US midterm elections; and worrying price behavior of AI spenders and lenders.

Judging from the report's scenario, the Fed's interest rate hike in October could repair the credibility of the policy. The US CPI has been above the 2% inflation target for 66 consecutive months. After the interest rate hike is implemented, long-term US bond yields are expected to decline by another 20 basis points. As long as fears at the AI financing level are mitigated, the downside of risky assets can be restrained.

At the transaction level, the report suggests adding beneficial assets with peak yields, including small-cap stocks and REITs, with a particular focus on non-essential consumer sectors. According to the Bank of America fund manager survey in October, the degree of institutional underallocation to non-essential consumer sectors reached the highest level since July 2008. For the technology sector, the report does not recommend additional exposure. According to the survey, the current degree of institutional overallocation to the technology sector is the highest since August 2020, and the market has formed a unanimous expectation of the “2027 AI bubble.” The report predicts that if semiconductor prices continue to rise, investors may return to the technology sector in mid-November.

In the long run, the report remains bullish on gold, commodities, and emerging markets, while recommending reducing long-term low allocations on bonds.