The Flow Show
Sell Signal Ends
Scores on the Doors: oil 70.0%, US stocks 1 3.1%, global stocks 10.2%, US dollar 3.8%, cash 2.9%, HY bonds -0.9%, IG -3.2%, govt bonds -4.4%, gold -4.5%, bitcoin -6.1% YTD.
The Biggest Picture: summer of extreme bull sentiment ends, but asset allocators are not underweight risk; ’26 record year of inflows (Charts 15-16) to global stocks ($1.3tn annualized), US equities ($636bn), IG bonds ($480bn), tech funds ($196bn – Chart 2), Korea equities ($76bn) vs. record year of outflows from consumer funds ($18bn).
The Price is Right: bond yields declining in Oct = equity breadth to improve in Q4; many “oversold” stocks... S&P 500 stocks trading 10% below their 52-week highs = 355, trading 20% below 52-week highs = 188, trading 30% below 52-week highs = 93.
Tale of the Tape: Indian rupee, Indonesian rupiah, Turkish lira at/close to all-time lows (Charts 3-5), while Japanese yen 3% from 40-year lows; combined population of Japan, Türkiye, Indonesia, India = 2 billion, and extreme currency depreciation (past 5 years...TRY -81%, JPY -28%, INR -21%, IDR -21%) never socially popular.
Weekly Flows: $64.5bn to stocks, $11.8bn to bonds, $0.1bn to gold, $0.6bn from crypto, $53.1bn from cash.
Flows to Know
- Treasuries: $3.6bn inflow...16th weekly inflow, longest streak since Aug'24,
- IG bonds: $3.5bn inflow...IG annualizing record $480bn inflow YTD,
- Stocks: $64.5bn inflow...global stocks annualizing record $1.3tn inflow YTD,
- US stocks: $39.1bn inflow...US stocks annualizing record $636bn inflow YTD,
- Tech: $10.7bn inflow...tech funds annualizing record $196bn inflow YTD,
- EM stocks: $17.7bn inflow, biggest since Jul'26 ($8.6bn into China, record $4.7bn into Brazil past 2 weeks),
- South Korea stocks: $1.1bn inflow...S. Korea funds annualizing record $76bn inflow YTD...for every $100 of Korea inflow YTD, just $7 of outflow since Aug peak vs. KOSPI -30% from June peak (Chart 13).
BofA Private Clients: $4.7tn AUM…66.4% stocks (record high), 17.1% bonds (almost record low), 9.3% cash (record low); private clients still adding stocks...equity ETF share count up 0.2% past week, up 8.0% YTD, but bond holdings starting to rise (up $11bn since Q1 in 2-10 year USTs, up $4.5bn in T-bills since June – Chart 14); in ETFs past 4 weeks, private clients buying municipal bond, bank loan, industrials ETFs, and selling staples, EM debt, and consumer discretionary ETFs.
BofA Bull & Bear Indicator: drops sharply from 8.1 to 7.4, driven by deteriorating global stock index breadth, bearish hedge fund positions in oil and S&P 500 futures, less bullish positioning in gold futures, and weaker HY and EM debt flows, partially offset by stronger tech inflows; Bull & Bear Indicator drop below 8.0 ends "sell signal" triggered May 26th...performance of risk indices since then SPX +3.0% (max drawdown -4.5%), NDX -0.2% (max drawdown -11.3%), ACWI +1.1% (max drawdown -4.4%), JNK junk bonds -4.1% (max drawdown -4.7%); "old" Bull & Bear Indicator drops to 5.1 from 5.6 last week and recent peak of 8.0 on Sept 1st (see BofA Bull & Bear Indicator report).
BofA Breadth Rule: net 52% of global equity market indices "oversold" (trading below 50-day & 200-day moving averages) …most since Apr'25; BofA Breadth Rule a faithful contrarian signal and "buy signal" for risk assets will be triggered if net 88% markets trading <50dma/200dma; near-term tough for this to happen unless "overbought" US, Taiwan, Brazil equity indices fall 6%-10%.
Our View
- we continue to lean risk-off next 3-4 weeks given 3% real yields (Chart 6), need for Fed to hike Oct 28th, US/Iran/Russia/Ukraine/oil, rising risk of “wave-like” DEM sweep midterms, price action AI spenders & lenders (see PSP, BIDZ, ORCL CDS...Charts 7-9),
- we expect a Fed Oct hike to restore credibility (66 consecutive months CPI has been above Fed's 2% target) to reduce long-end Treasury yields another 20bps in coming weeks, limiting downside for risk assets so long as AI financing fears abate, and post-midterms no big new spats between US-China (note Xi/Trump meet Shenzhen APEC Nov 18th and Miami G20 Dec 14th),
- we add exposure to "peak yield" beneficiaries, e.g., small cap, REITs, and particularly consumer discretionary (note BofA Oct FMS shows investors most underweight consumer discretionary stocks since Jul’08); we don’t add tech (BofA Oct FMS shows investors most overweight tech since Aug'20 and AI bubble in ’27 now consensus); longer-term, asset allocation we stay long gold, commodities & emerging markets, and advise secular short underweight positions in bonds & China need to be reduced,
- we think macro and markets into ’27 driven by AI; watch semiconductor prices (Chart 11)... fresh price gains = bullish... says AI spending arms race between US & China continues (Chart 10), as does US government guarantee bond/equity prices won’t be allowed to impede US (even with DEM sweep midterms)...investors then return to tech mid-Nov and enter ’27 reversing “short tech bond” positions; a rollover in semi prices signals further tightening of AI credit, top in AI capex growth, and lower-than-expected nominal GDP growth (Chart 12) in ’27; asset returns next year then driven by income rather than by capital appreciation.
Asset Class Flows (Table 1)
Equities: $64.5bn inflow ($73.2bn to ETFs, $8.6bn from mutual funds)
Bonds: inflows past 77 weeks ($11.8bn)
Precious metals: inflows past 15 weeks ($0.1bn)
Fixed Income Flows (Chart 17) IG Bond inflows past 4 weeks ($3.5bn)
HY Bond outflows past 3 weeks ($0.9bn)
EM Debt inflows past 11 weeks ($0.8bn)
Munis inflows past 26 weeks ($4.5bn)
Govt/Tsy inflows past 16 weeks ($3.6bn)
TIPS inflows past 37 weeks ($0.8bn)
Bank loan inflows past 6 weeks ($0.8bn)
Equity Flows (Table 2) US: inflows past 2 weeks ($39.1bn)
Japan: inflows resume ($0.4bn)
Europe: outflows resume ($1.5bn)
EM: inflows past 3 weeks ($17.7bn)
By style: inflows US large cap ($32.5bn), US growth ($1.6bn), US value ($1.2bn), US small cap ($1.1bn).
By sector: inflows tech ($10.7bn), energy ($1.3bn), hcare ($1.2bn), real estate ($0.3bn), outflows utilities ($8mn), com svs ($0.1bn), materials ($0.1bn), consumer ($0.6bn), financials ($1.4bn).
BofA private client flows & allocations
The Asset Class Quilt of Total Returns
BofA Rules & Tools
Our BofA Bull & Bear Indicator is at 7.4… signal is Neutral.
2026 Cross-Asset Winners & Losers
Acronyms FMS – Fund Manager Survey
GWIM – Global Wealth and Investment Management
MA – Moving average
AUM – Assets Under Management
AA – Asset allocation
ATH – All-time high
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Disclaimer: The indicators identified above as the BofA Bull & Bear Indicator, MVP Model, BofA Global Breadth Rule, BofA EM Flow Trading Rule, BofA Global Flow Trading Rule, BofA Global FMS Macro Indicator, BofA Global FMS Cash Rule, Global Wave, Sell-Side Indicator, and Global Financial Stress Indicator are intended to be indicative metrics only and may not be used for reference purposes or as a measure of performance for any financial instrument or contract, or otherwise relied upon by third parties for any other purpose, without the prior written consent of BofA Global Research. These indicators were not created to act as a benchmark. The analysis of the BofA Bull & Bear Indicator in this report is back-tested and does not represent the actual performance of any account or fund. Back-tested performance depicts the hypothetical back-tested performance of a particular strategy over the time period indicated. In future periods, market and economic conditions will differ and the same strategy will not necessarily produce the same results. No representation is being made that any actual portfolio is likely to have achieved returns similar to those shown herein. In fact, there are frequently sharp differences between back-tested returns and the actual results realized in the actual management of a portfolio. Back-tested performance results are created by applying an investment strategy or methodology to historical data and attempts to give an indication as to how a strategy might have performed during a certain period in the past if the product had been in existence during such time. Back-tested results have inherent limitations including the fact that they are calculated with the full benefit of hindsight, which allows the security selection methodology to be adjusted to maximize the returns. Further, the results shown do not reflect actual trading or the impact that material economic and market factors might have had on a portfolio manager’s decision-making under actual circumstances. Back-tested returns do not reflect advisory fees, trading costs, or other fees or expenses.