BofA’s Hartnett flags extreme bullish sentiment as contrarian sell signal

According to CNBC, Bank of America Securities’ latest bull and bear indicator hit 9.4, an extremely bullish reading that reflects investor optimism tied to strong artificial intelligence spending and expectations for a dovish Federal Reserve. The report said the stock market rally has largely stalled since early June amid mixed signals on gas prices, doubts about future AI profits and uncertainty over monetary policy, leaving investors waiting for a catalyst. Bank of America’s Michael Hartnett warned that elevated optimism can act as a contrarian sell signal and said investors should cut equity exposure, particularly in high-beta stocks. Some investors are looking to second-quarter earnings season as the next catalyst; FactSet data shows the S&P 500 is set to post earnings growth above 20% for a second straight quarter. Paulsen Perspectives’ Jim Paulsen said history shows that when stock prices and earnings per share rise above trendline averages, the market’s average performance over the next year has tended to be weak. The article also cited concerns that higher inflation could pressure earnings expectations if hostilities between the U.S. and Iran worsen, though major averages were higher Tuesday after June consumer price data showed inflation was softer than feared.