Financial institutions warn of market volatility and AI investment risks

Financial institutions are warning of increasing vulnerability in global equity markets. Bank of America has issued a sell signal for the S&P 500 after its Bull & Bear Indicator reached 9.5, entering the ‘Extreme Bullish’ zone. The firm suggests that crowded long positions could unwind if economic data or earnings expectations disappoint, noting that the index remains near record highs.

Additionally, Bank of America analysts have flagged a potential 10% downside risk for the Philadelphia Semiconductor Index.

Separately, the Bank for International Settlements (BIS) reported that the AI-driven market rally is showing signs of weakness. The BIS noted growing investor caution regarding the profitability of future AI investments and highlighted rising leverage among major U.S. technology firms. The report also pointed to fiscal fragility and the impact of significant debt issuance by AI firms on government bond yields, though it noted that overall investor risk appetite has remained resilient.