BofA Hartnett: Early June Will Be a Good Opportunity to Take Profits

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As the stock market hits new historic highs, Bank of America Chief Investment Strategist Michael Hartnett issues a warning: with investors flocking into the market and inflation risks heating up, early June will be a window for profit-taking.

According to Chase Trading Desk, Hartnett writes in the latest edition of the “Flow Show” weekly report, “The retreat-style chasing in stocks and tech may be fully completed in the next few weeks, and early June is an opportune time to reduce positions.” He points out, a series of key events will concentrate in June, including the seventh OPEC meeting, the opening of the World Cup, the G7 Summit, and the first Fed FOMC meeting chaired by Kevin Warsh. Each of these events could trigger cautious market sentiment.

Inflation data provides direct backing for this warning. U.S. PPI for April rose 6% year-on-year, the fastest increase since 2022; CPI rose 3.8% year-on-year, above economist expectations. Hartnett's team calculates that if the monthly 0.4% increase over the past six months does not quickly abate, U.S. CPI will break 5% before November midterm elections, posing clear pressure on the stock market.

Inflation Alert Line: CPI >4% Is the “Dragon Zone” for Risk Assets

Hartnett defines CPI breaking above 4% as the critical point where risk assets begin to get “restless.”

Quoting historical data from the past 100 years, he points out that once inflation crosses this threshold, the S&P 500 on average falls 4% in the next three months and 7% over six months.

Current inflation pressure has broadly spread, covering energy, electricity, transportation, commodity prices, and rent. Rising inflation expectations have pushed the 10-year U.S. Treasury yield above 4.5%, and the 30-year yield over 5%—Hartnett previously called this level the “Maginot Line.”

The Bank of America team predicts that if the monthly rate stays at 0.4%, CPI will reach 5.2% by year-end; even if it falls to 0.3%, year-end CPI will still climb to 4.4%, both far exceeding the Fed's 2% target.

Bull Market Sentiment Approaching Extremes, Multiple Indicators Send Warnings

Bank of America Bull & Bear Indicator rose from 7.2 to 7.6 this week, nearing the 8.0 “sell signal” trigger line.

Hartnett’s team notes, if global equity inflows reach $15–20 billion, emerging market bonds and high-yield bonds each receive about $2 billion, and May fund manager surveys show cash allocations drop from 4.3% to 3.8% in the next two weeks, the indicator will hit a sell signal.

Private client portfolio data also confirm the extreme optimism in the market. Bank of America private clients manage $4.5 trillion in assets, with stock allocation reaching 65.7%, a historic high; cash allocation dropping to 9.8%, a historic low. Since the March 30 low, the S&P 500 index has rebounded 18%, the Nasdaq 100 has risen 29%, and the AI boom has driven semiconductors and related stocks to repeated highs.

Currently, the semiconductor SOX index is deviating 62% from its 200-day average, with Hartnett comparing this level to historical bubbles such as the Mississippi bubble and the internet bubble—the average peak deviation during past major bubbles was only 35%.

Stocks and Bonds Simultaneously Attract Capital

Latest weekly fund flows show bonds attracted $28.1 billion, stocks $20.5 billion, cash $5.8 billion, gold $2 billion, while cryptocurrencies saw outflows of $1.3 billion, the largest weekly outflow since February 2026.

Breaking down by market, U.S. large-cap stocks drew $24.4 billion in a week, the most in the past five weeks; tech stocks took in $5.4 billion, the most in three months; infrastructure funds recorded $1.5 billion, a historic weekly high.

Investment-grade bonds saw $42.2 billion inflows over the past four weeks, the largest four-week inflow since March 2026; Treasuries had a third straight week of inflows, with $5.6 billion, the most in six weeks.

New Fed Chair Appointment and Political Risks Add Extra Variables

Hartnett’s team also notes that historically, average Treasury yields rise about 50 basis points in the first three months after a new Fed chair takes office. If this pattern repeats with Kevin Warsh, 2-year Treasury yields may rise to 4.53%, 10-year yields to 4.93%.

On the political front, Hartnett cites UK local election data showing that non-mainstream parties like the Reform Party and the Green Party saw their vote share jump from 3% to 41%, while traditional parties like Labour and Conservatives saw their share plunge from 92% to 54%.

He believes extreme politics and extreme Wall Street price moves are mutually reinforcing, and that inflation’s erosion of living standards is the fastest way for incumbents to lose voter support—Trump’s approval rating on inflation has fallen to 30%, close to a Biden-era low. Hartnett warns this slow-burning fuse may trigger a large-scale asset rotation from chips and commodities to the consumer sector in 2027.

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