Here's the downside to record-setting stock markets across the globe that are generating a wealth boom

By Jules Rimmer

Americans are $6 trillion better off this year owing to the wealth generated by rising stocks

Some Americans are getting richer thanks to the stock market. There's a downside to that, says Bank of America.

The long-running surge in American stock markets is generating unprecedented household prosperity.

That's according to Bank of America's chief equity strategist, Michael Hartnett, who calculates that record-highs in benchmark indices SPX NDX have created $6 trillion of wealth already this year after figures of $10 trillion in 2025 and $9 trillion in 2024.

There are downsides to these newly-created riches, though. What Hartnett refers to as the "wealth-equity boom loop," is accentuating the inequalities of the K-shaped economy (wherein high-income earners are spending heavily, while those on low-incomes struggle). It's also causing what he calls a "wealth-price spiral."

US household equity wealth up $6tn YTD... "boom loop"

Inflation is the serpent in the U.S.economic paradise.

The wealth effect of a rising stock market means that, while not all consumers are created equal, inflation is rising as a consequence of those who are benefiting from financial asset price appreciation actually spending it.

Hartnett's warning was delivered in his weekly Flow Show strategy note sent to investors Friday. The report included a chart highlighting that when U.S. unemployment is lower than inflation "there be dragons." In other words, that toxic combination spells trouble.

When unemployment lower than inflation...there be dragons

The inflation threat, as Hartnett and his team of Anya Shelekhin, Myung-Jee Jung and Jessica Guo point out, is everywhere apparent. Right now, 46 out of 68 central banks globally are overshooting their inflation target and/or the mid-point of their inflation target range.

Central banks, Hartnett opines, are "behind the curve," and yield curves are bear flattening (by which rates of shorter maturity bonds are rising faster than those of longer duration) as markets discount the probability of bankers eventually correcting their policy mistakes.

This widespread, overly-relaxed monetary policy is the reason, Hartnett explains, why U.S. long bonds BX:TMUBMUSD30Y, private credit and emerging markets forex are all struggling.

The threat posed to bond markets by stubbornly out-of-control inflation means that the risk of a major correction this month, or a "June Swoon" as Hartnett calls it, is still high and "bubbles are ended by bonds."

There are a handful of events identified by Hartnett that could disrupt fixed-income markets. These range from payrolls data due Friday 5 June, consumer price index on June 10, ECB and Bank of Japan policy meetings on June 11 and 16 respectively, and Kevin Warsh's first chairing of the Federal Open Market Committee on June 17.

This confluence of market-sensitive events could send U.S. 30-year yields back above 5% and corresponding bonds in the U.K. BX:TMBMKGB-30Y and Japan BX:TMBMKJP-30Y above 6% and 4%, respectively.

These risks explain why Bank of America's bull and bear trading indicator, (a proprietary cross-asset barometer which uses fund flows, positioning data and market technicals to quantify investor fear and greed) has just registered its third week showing a sell signal. The signal is caveated by an acknowledgement that "tops are a process, lows are a moment."

The most overbought markets at present, according to Hartnett, are Korea KR:180721, Taiwan TW:Y9999 and Finland EFNL while the most oversold are Indonesia ID:JAKIDX (extremely so) India XX:BSE100 and China CN:SHCOMP. Of the latter three, Hartnett predicts China will bounce hardest in the event of a genuine, Sino-Iranian peace agreement.

-Jules Rimmer

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06-05-26 0749ET