BofA's Hartnett: U.S. stocks haven't "bottomed out," and Trump may be forced to launch an "emergency policy package."

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Bank of America’s latest fund flow report shows that market sentiment has cooled noticeably from extreme optimism, but key buy signals have not yet been triggered and the timing for contrarian investors to enter is not mature.

According to Chasing Wind Trading Desk, BofA strategist Michael Hartnett released his latest report on March 27th, noting that the BofA Bull & Bear Indicator has plunged from 8.4 to 7.4. Since the sell signal was triggered on December 17th last year, the S&P 500 index has cumulatively dropped 5%, with a peak to trough maximum drawdown of 7%.

Although the sell signal has officially ended, multiple BofA trading rules show that the market currently lacks a concentrated surrender by bulls and no macro-level panic (such as drastic downgrades in GDP or EPS forecasts), so contrarian buying conditions are not adequate.

BofA believes that decision makers will be forced to act in order to avoid an economic recession, which could trigger “policy-driven panic easing.” Once the Middle East conflict is resolved, Trump may push measures to protect U.S. consumers from recession and consolidate his support among voters.

Bull & Bear Indicator falls, sell signal ends, but buy signal not in sight

This week, the BofA Bull & Bear Indicator dropped sharply from 8.4 to 7.4, the lowest level since July 2025, mainly dragged down by deteriorating breadth of global equity indices, outflows from high-yield bonds and emerging market bonds, and widening credit spreads.

Previously, the indicator triggered a sell signal on December 17th when readings were above 8.0. Subsequently, the S&P 500 cumulatively fell by 5%, with a maximum drawdown of 7%.

According to BofA's historical data from 32 sell signals ending since 2002, the S&P 500 and MSCI Global Index averaged only a 1% return over the following three months, lacking strong rebound attraction.

Compared to previous market bottoms, current indicator readings remain significantly high. During the “reciprocal tariffs” sell-off in April 2025, the indicator dropped to 3.4; at the peak of COVID panic in 2020, it fell to 0.0, and it is currently far from those extreme low levels.

Global Breadth Rule: Further declines needed to trigger buy signal

BofA believes the indicator most likely to trigger a buy signal first is the “Global Breadth Rule” — when 88% of global equity indices simultaneously fall below their 50-day and 200-day moving averages, this rule will give a buy signal.

Currently, the indicator reads -16%; on Monday (March 23rd), it briefly reached -39% before rebounding somewhat. According to BofA calculations, to trigger a buy signal, Asian-Pacific stock markets need to fall about 2% more, emerging markets down another 3%, and Latin American markets down another 14%.

Other indicators also have not reached buy thresholds: Global fund manager survey cash positions are at 4.3%, with a buy threshold at 5.0%. For the global flow trading rule, there needs to be more than 1% of assets under management outflow from global equities and high-yield bonds within 4 weeks; currently, the reading is only -0.8%.

Major outflows: Stocks, high-yield bonds, and gold all see net outflow

This week’s fund flows are clearly risk-averse. U.S. equities saw $23.5 billion in single-week outflows, the largest in 13 weeks. European equities had $3.1 billion outflows, the biggest since April 2025. Materials sector saw outflows of $10.5 billion, an all-time record.

High-yield bonds saw net outflows for five straight weeks, $3.3 billion left this week, with $13.5 billion out in three weeks—the largest three-week outflow since April 2025. Gold funds had net outflows of $6.3 billion this week, the biggest since October 2025.

Funds are mainly flowing into short-term fixed income: U.S. Treasuries had $6.8 billion inflow this week, with $19.7 billion over two weeks—the largest inflow since April 2025. Short-term bonds (under 4 years maturity) saw $13.3 billion in a single week, the third-largest weekly inflow in history.

In contrast, long-term bonds (over 6 years maturity) saw $4.7 billion outflow in one week—the largest since March 2020 and the second-largest weekly outflow historically.

BofA Base View: Policy Panic is Coming, Waiting for a Better Entry Point

Based on all indicators, BofA’s base judgment is: decision makers will be forced to act to avoid an economic recession, sparking “policy-driven panic easing.”

But before that, the market may remain in a wide-range oscillation pattern—a range that began in October to November last year, when liquidity peaked, AI capital expenditure optimism peaked, and Trump lost elections in New York, New Jersey, and the Virgin Islands. BofA expects this pattern will continue until the midterms in November 2026.

BofA strategists recommend not rushing in at this stage, nor greedily chasing rallies.

Against the backdrop of a dollar bear market and global fiscal expansion, gold bulls may gradually return. BofA also views software, private equity, and consumer finance as the most contrarian long directions for Q2—these assets are all currently in oversold range relative to their 50-day and 200-day moving averages.

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The above content is excerpted from Chasing Wind Trading Desk.

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