Bank of America warns of overheating in US stock market

Bank of America has raised its warning level on the US equity market, citing a surge of risk signals. Strategists led by Savita Subramanian said “there are too many red flags right now” and urged investors to consider profit‑taking and reducing equity exposure. The bank notes that about 70% of typical bearish indicators are currently active, mirroring conditions that preceded past market downturns.

BofA’s analysis finds the S&P 500 statistically overvalued on 17 of 20 metrics, with valuations higher than during the dot‑com bubble on eight measures. The index traded near 7,450, and the bank set a year‑end target of 7,100, roughly 4% below current levels. It highlighted a widening performance gap between top‑ and bottom‑ranked tech stocks – the widest since February 2000 – and warned that high capital‑intensive spending by hyperscale firms could strain cash flows.

The firm cautioned that while some large‑cap tech names are driving the index higher, many stocks are lagging, and investors should focus on selective stock picking rather than broad market exposure.