Fast forward to today, when the BofA CIO is not so sure.

Wrapping up the Biggest Picture in his latest Flow Show , Hartnett says that market sentiment can be best summarized as follows: “strong price action, retail mania, slumping vol…so bubbly.” Indeed, it appears the BofA Chief Investment Strategist is no longer on the fence about that AI bubble, and to underscore that point, Hartnett says that if one adds the upcoming mega IPOs to the AI big boys, then AI market concentration easily surpasses (~48%) bubbles of roaring ‘20s, Nifty 50 ‘70s, Japan ‘80s, TMT ‘90s. The only bubble that AI has yet to surpass railroads from 1880s, which peaked at 63% of all market cap.

Repeating his warning from last week, Hartnett says that the recent surge in bond yields which this week pushed the 30Y to the highest level in 19 years…

… is how booms/bubbles end, and why the bond vigilantes on maneuvers; yet things could still change and the BofA strategist gives the following two yield tells: XBI to $120 = yield to melt-up, XRT>$85 = bond shock delayed.

Meanwhile, as the AI bubble still grows, Hartnett looks at its ever bigger geopolitical consequences, and finds that Asia tech is advancing sharply, and Asia is exporting inflation – Korea export prices for semis up 148% YoY, DRAMs up 223% YoY.

Yet echoing what we said on Friday, namely that amid the record capital outflows and the collapse in the currency, the KRW could soon be the next big currency crisis…

… Hartnett points out that the Korean won is flirting with 30-year lows, the Japanese yen with 35-year lows, Indonesian rupiah & Indian rupee collapsing to record lows…

… and warns that surging global cost of capital cracking the periphery of risk (plus housing, consumer, PE) and Emerging Markets is always where the big risk-offs start.

It’s not just soaring yields, although between them and oil, stocks would be more than 1000 points lower once reality reasserts itself.

Adding further to the growing negative sentiment, Hartnett updates his Bull & Bear Indicator and finds that in the latest week it has hit 8.0, which means the sell-signal for risk assets has been triggered; This is a problem since, as we saw in the latest Fund Manager Survey, consensus is max bullish on Positioning & Profits, plus yields breaking up suggests some profit taking here.

Some more details:

BofA Bull & Bear Indicator: up to 8.0, triggering contrarian sell signal for risk assets, on tech/EM debt inflows + record monthly jump in FMS equity allocation + drop in FMS cash levels to 3.9%; there have been 17 “sell signals” since ’02, average loss for global stocks over 2-3 months is 2-3% (hit ratio of ~60%), with max drawdowns of 15-20%

And yet despite the top-tick alarms now ringing loud, Hartnett agrees with our cynical view that selling is premature until the SpaceX/OpenAI IPOs price (the banks will simply not allow a crash before they happen as they would lose on billions in fees), and investors should wait for 2 things to happen before selling, to wit: “no one is cutting longs in stocks i) before historic IPOs and ii) big top Policy tightening which will come after CPI hits 4-5% in the coming months” which has historically preceded major market drawdowns (as detailed in “Stocks And Bonds Are On A Collision Course”).

Before we drill down further into the topic of mega IPOs, here is a brief tangent here on the latest weekly fund flows, which are as follows:  $30.5bn to bonds, $2.4bn to stocks, $1.2bn to cash, $1.1bn from gold, $1.5bn from crypto. Here are the main flows to know:

• Crypto: $1.5bn outflow, biggest since Feb’26,
• Treasuries: $10.8bn inflow, biggest in 9 weeks,
• US equities: $9.5bn inflow, 8 weeks of inflows, longest streak since Dec’25,
• Europe: $2.3bn outflow, 6 weeks of outflows, longest streak since Feb’25,
  
• EM equities: $7.9bn outflow, 6 weeks of outflows, longest streak since Nov’24,
  
• Tech: $9.0bn inflow, biggest since Oct’25,
  
• Financials: $2.4bn outflow, biggest in 10 weeks,
• Materials: $2.9bn outflow, biggest in 8 weeks

* * *

Going back to mega IPOs as a market-timing indicator, Hartnett takes us through a brief history of market reactions to the world’s most notable public offerings, and in the table below shows the price action in broad indices after top 10 IPO launches of all time:

• Alibaba and ICBC IPOs were “rocket fuel” for Chinese equities in following 3-12 months;
• NTT & ENEL were timed before big bear markets but big bear began a year later; in contrast,
• Visa & AIA were “toppy” IPOs, with SPX & Hang Seng much lower 9-12 months after launch;
• Aramco, Softbank, Facebook, GM launches were inconsequential for broader stock market.

IPO signals notwithstanding, Hartnett reminds his clients that a “Wealth-Price spiral is not a Wage-Price spiral”. Yes, the wealth-stocks-boom loop is ongoing; but just a tiny sliver of the population is benefiting, and now Trump’s inflation approval is just 28%, and his broader economic approval is a Biden-esque 35%.

At the same time, the plight of the heavily indebted US consumer has rarely been worse: indeed, as shown below, equal-weight consumer stocks are trading below their Lehman lows relative to S&P 500.

Meanwhile, as AI is cutting the price of labor (but not the quantity of labor – see payrolls), Hartnett says there is little wonder investors pricing in stock-bullish end of Iran conflict as US admin starts to address affordability angst/energy price inflation via big cuts in US SPR, indeed the US Strategic Petroleum Reserve is down 10% or 41mn bbls since March, rapidly approaching near-record lows.

Putting this together, Hartnett thinks Emerging Markets and commodities remain structural bulls, but consumer stocks will be best post-bubble contrarian play; meanwhile the best AI play from here onward will be small cap tech adopters & transformers that kill monopolies, duopolies, oligopolies…just like late ‘70s after Nifty Fifty pop.

Hartnett concludes with client feedback from his recent London trip, here are the main soundbites:

• “we’re long and paranoid,”
• “wants/needs to de-escalate Iran, and stocks pop, yields drop on deal,”
• “if UK gilts find love, everything finds love,”
• “European electorate shifting decisively right, Farage in UK, Le Pen in France, and you watch the AfD in Germany will win Saxony-Anhalt in September, their first state election,”
• “the fear in bonds is nowhere near as strong as greed in equities,”
• “Warsh will be rhetorically hawkish but practically dovish over the summer,”
• “US actions in Venezuela, Ukraine, Iran, Greenland, Cuba should be viewed through single strategic lens competition with China in AI, which can only be won by securing access to critical resources.”

One final point: Hartnett sarcastically notes that this week’s zeitgeist quote is “Everyone is now convinced that equities are the best inflation hedge.”