A stock-market sell signal has been triggered at Bank of America. Here's what happens next.

By Steve Goldstein

A bearish signal has been triggered that has typically led to a big pullback.

A flow of money into stocks and more equities participating in the bull market have triggered a sell signal that historically has led to big pullbacks, according to a new Bank of America report.

Bank of America's bull and bear indicator - a 0-to-10 scale only recently reconfigured to include the impact of ETF investing and evolving hedging strategies - rose to 8.5 from 7.9.

Bank of America's proprietary bull and bear indicator.

BofA regards any reading above 8 to trigger a sell signal, and the 16 "hits" since 2002 have seen the S&P 500 fall on average 1.4% over the next three months. The drawdown in global stocks, as measured by the MSCI all-country world index, has been 8.5% on average over three months, with maximum upside of just 1.7% over the next month.

   Bank of America sell signals  S&P 500  U.S. Treasuries 
   1m       2m       3m       1m               2m      3m 
   Apr-02                        -0.40%   -9.80%   -23.40%  0.70%            2.60%   5.00% 
   Jan-04                        1.40%    -1.80%   -0.10%   0.10%            2.20%   -1.20% 
   Jan-06                        2.00%    2.30%    3.60%    -0.20%           -0.70%  -1.60% 
   Jan-07                        1.90%    -3.10%   1.50%    -0.30%           1.60%   1.40% 
   Oct-07                        -4.40%   -5.20%   -11.00%  3.00%            3.20%   5.80% 
   Oct-09                        0.90%    3.40%    3.20%    0.80%            -0.40%  0.40% 
   Apr-10                        -6.10%   -10.20%  -9.50%   2.30%            3.70%   4.70% 
   Oct-10                        1.80%    6.50%    8.70%    -1.60%           -3.10%  -3.40% 
   Apr-11                        0.20%    -2.60%   1.00%    1.60%            2.70%   2.70% 
   Mar-12                        -0.60%   -4.10%   -5.80%   0.50%            1.90%   2.80% 
   Jan-13                        3.90%    6.30%    9.10%    -0.40%           -0.50%  0.70% 
   Oct-17                        1.00%    5.10%    9.50%    -0.20%           -0.10%  -0.90% 
   Jan-18                        -2.50%   -3.10%   -3.90%   -1.50%           -1.30%  -1.30% 
   Jan-20                        2.30%    -11.40%  -14.20%  2.10%            7.90%   8.50% 
   Dec-20                        2.40%    4.30%    2.70%    0.50%            -0.70%  -3.40% 
   Jul-25                        1.70%    4.70%    6.00%    1.10%            2.30%   3.30% 
   Backtest average              0.30%    -1.20%   -1.40%   0.50%            1.30%   1.50% 
   Backtest median               1.20%    -2.20%   1.20%    0.50%            1.80%   1.00% 

Bank of America said the contrarian sell signal was triggered by huge inflow to equity ETFs, rising global stock index breadth and hedge funds cutting length in VIX futures (VX00).

Chief investment strategist Michael Hartnett said investors are bullishly positioned for "run-it-hot" acceleration in purchasing managers index and earnings per share, due to rate cuts, tariff cut and tax cuts. But he doesn't expect earnings to surprise to the upside due to rising U.S. unemployment and bond vigilantes slowing the AI capex boom, unless big Chinese economic stimulus arrives.

While not chasing risk-on consensus, Harnett advises playing lower CPI by going long zero-coupon bonds , mid caps, emerging markets equities, and natural resources.

The S&P 500 SPX on Thursday broke a four-session losing streak after a benign CPI reading and has gained 15% this year.

-Steve Goldstein

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(END) Dow Jones Newswires

12-19-25 0920ET