The U.S. stock market is approaching a potential turning point, warns Bank of America’s Michael Hartnett, who sees the S&P 500 walking a tightrope between explosive gains and a sharp reversal. According to a recent client note, if the benchmark index pushes past the 6,300 mark in July, it could trigger a key technical “sell” signal.

“Markets can stay overbought for longer than many expect because greed tends to outlast fear,” Hartnett wrote, signaling that current sentiment remains tilted toward excess optimism.

BofA’s strategists describe the market outlook as a classic “bubble or bust” scenario, where the odds appear skewed more toward a surge to 7,000 than a drop to 5,000 during the summer months.

Investors Flock to Bonds and Cash Amid Uncertainty

In the week ending July 2, investors sought safety, funneling large sums into money market and bond funds. According to data from EPFR Global, money market accounts pulled in $56.4 billion, while bond funds saw a $20.5 billion influx. In contrast, equity funds attracted a more modest $2.2 billion, with gold and crypto funds gaining $1.4 billion and $1 billion, respectively.

Despite the overall bond inflows, U.S. Treasury funds suffered $2.7 billion in outflows—their largest retreat in over two months. Meanwhile, investment-grade bonds stood out, drawing in $16.7 billion—their strongest inflow since June 2020.

Growth-oriented U.S. stock funds were hit hard, experiencing their biggest withdrawal since March with $5.0 billion in outflows. Mid-cap stocks also took a hit, losing $5.7 billion in investor capital—the largest weekly outflow since July of last year.

On the sector side, financial stocks made a strong showing, with funds in the space attracting $1.6 billion—the most since January.

Private Clients Shift Toward Stocks, Cut Bonds

Among Bank of America’s private wealth clients, who collectively oversee nearly $4 trillion, there was a notable shift toward equities. Their allocation to stocks climbed to 63.7%, the highest level since March 2022. At the same time, bond exposure fell to 18.5%, hitting a two-year low, while cash positions remained steady at 10.8%.

Regional Trends: U.S. Sees Outflows, Europe Attracts Inflows

On a geographic basis, U.S. equity funds saw net outflows of $1.9 billion, marking the second straight week of withdrawals. European stocks posted inflows for a third consecutive week, pulling in $600 million.

Elsewhere, emerging market equities resumed their losing streak with $500 million in outflows. Japanese stocks extended their slump for a fourth week, shedding $2.8 billion in investor capital.