Bank of America’s Hartnett: U.S. stocks haven't "bottomed out" yet, and Trump may be forced to roll out“policy rescue package”

Ask AI · When Might Policy Panic-Style Easing Be Triggered?

The latest U.S. bank fund flow report shows that market sentiment has clearly cooled off from extremely optimistic levels, but key buy signals have not yet been triggered—the timing for contrarian investors to step in is not yet ripe.

According to the Pursuit Trading Desk, on March 27 Bank of America strategist Michael Hartnett released his latest report. Bank of America’s bull/bear indicator has plunged from 8.4 to 7.4. Since it issued a sell signal on December 17, the S&P 500 index has fallen cumulatively by 5%, with the largest peak-to-trough drawdown reaching 7%.

Although the sell signal has officially ended, multiple trading rules from Bank of America indicate that the current market has neither seen a concentrated capitulation by bulls nor a macro-level panic (i.e., a significant downgrade in GDP and earnings per share expectations). Therefore, the conditions for a contrarian buy are not sufficient.

Bank of America believes policymakers will be forced to take action to avoid an economic recession, thereby triggering “policy panic-style easing.” At the same time, once the conflict in the Middle East is resolved, Trump may push for certain measures to protect U.S. consumers from the impact of an economic recession and to solidify his support rate among voters.

Bull/Bear Indicator Pulls Back: Sell Signal Ends, But No Buy Signal Appears

Bank of America’s bull/bear indicator this week has dropped sharply from 8.4 to 7.4, the lowest level since July 2025. It has been mainly dragged down by worsening global equity index breadth, outflows from high-yield bonds and emerging-market bond funds, and widening credit spreads.

The indicator previously triggered a sell signal on December 17, when the reading was above 8.0. Since then, the S&P 500 index has fallen cumulatively by 5%, and the peak drawdown has been as high as 7%.

Based on Bank of America’s historical statistics since 2002 covering 32 times when sell signals ended, the average return of the S&P 500 and MSCI Global Index in the following three months was only 1%, which does not suggest strong rebound appeal.

Compared with several prior occasions when markets formed major bottoms, the current indicator reading is still significantly elevated. During the April 2025 “reciprocal tariff” selloff, the indicator fell to 3.4; at the height of panic during the 2020 COVID-19 pandemic, it once dropped to 0.0. Right now, it is far from the extreme levels seen at historical major bottoms.

Global Breadth Rule: A Further Drop Is Still Needed to Trigger a Buy Signal

Bank of America says the indicator most likely to trigger a buy signal first is the “global breadth rule”—when 88% of global equity indices simultaneously fall below the 50-day and 200-day moving averages, the rule will issue a buy signal.

The indicator is currently at -16%. On Monday (March 23) it briefly touched -39%, but then it recovered somewhat. According to Bank of America’s calculations, to trigger a buy signal, it would still require about another 2% drop in Asia-Pacific equity markets, another 3% drop in emerging-market equity markets, and another 14% drop in Latin American equity markets.

Other indicators still have not reached their buy thresholds: the cash position in a survey of global fund managers is 4.3%, versus a buy threshold of 5.0%. For the global flow trading rule, a signal is triggered only if global equities and high-yield bonds have outflows exceeding 1% of the asset management size within 4 weeks; the current reading is only -0.8%.

Big Capital Exodus: Net Outflows Across Stocks, High-Yield Bonds, and Gold

This week’s fund flows show a clear risk-off pattern. U.S. stocks saw outflows of $23.5 billion in a single week, the largest in nearly 13 weeks. European stocks saw outflows of $3.1 billion, the biggest single-week outflow since April 2025. The materials sector saw outflows totaling $10.5 billion, setting a historical record.

High-yield bonds have recorded net outflows for five consecutive weeks. This week alone saw outflows of $3.3 billion, and over the past three weeks cumulative outflows reached $13.5 billion—marking the largest three-week outflow since April 2025. Gold funds saw net outflows of $6.3 billion this week, the largest single-week outflow since October 2025.

Funds mainly flowed into short-term fixed-income assets: U.S. Treasuries saw inflows of $6.8 billion this week, and inflows of $19.7 billion over two weeks, the largest two-week inflow since April 2025. Short-term bonds (maturities of 4 years or less) saw inflows of $13.3 billion in a single week, the third-largest single-week inflow in history.

By contrast, long-term bonds (maturities of 6 years or more) saw outflows of $4.7 billion in a single week, the largest since March 2020 and the second-largest weekly outflow in history.

Bank of America’s Base Case: Policy Panic Is Coming—Wait for a Better Entry

Taken together, Bank of America’s base case is: policymakers will be forced to take action to avoid an economic recession, thereby triggering “policy panic-style easing.”

Before that happens, however, the market may still maintain a wide-range consolidation pattern—this wide trading range has already been underway since last October to November, when liquidity peaked, AI capital expenditure optimism hit its high point, and Trump suffered election losses in New York, New Jersey, and the U.S. Virgin Islands. Bank of America believes this pattern will most likely persist until the midterm elections in November 2026.

Bank of America strategists suggest that for now there is no need to rush into positions, and it is also not advisable to chase rallies greedily.

Against the backdrop of a U.S. dollar bear market and a trend of fiscal expansion in other regions worldwide, opportunities for gold longs may gradually return. Meanwhile, Bank of America also believes software, private equity, and consumer finance are the most contrarian long directions for Q2—these assets are currently all in relatively oversold ranges below the 50-day and 200-day moving averages.