The investor community has not been this bullish since 2021. That is the message from Bank of America’s analysts, who point to the US bank’s proprietary gauge of risk appetite across financial markets.

The indicator in question is the Bull & Bear Indicator, which has just jumped to 9.7 points, a record since 2021. The index built by the research division of the American banking giant sends an unambiguous signal: market fever has climbed to its highest level in five years.

As a result, Bank of America has issued a clear warning to investors, taking a contrarian view relative to other market strategists while at the same time advising which assets to favor, factoring in what is happening in the bond market.

The Bull & Bear Indicator levels to watch

It is worth recalling that any reading above 8 points on Bank of America’s Bull & Bear Indicator is a “Sell” signal, while a reading below 2 points is a “Buy” signal. That alone says a great deal about what the number 9.7 means.

Analysts at the American banking giant attributed the indicator’s move from an already very elevated 9.4 points to 9.7 points to several developments, including shifts in the bond markets, and in particular the strong inflows into high-yield bonds.

Other factors showing investors have turned even more bullish include the tightening of spreads on global high-yield bonds and on Additional Tier 1 securities, along with the still decidedly positive sentiment across equity markets worldwide.

Bank of America says step back from risk. Where to invest

The problem, Bank of America’s strategists warned, is that the surge in bond yields has tightened financing conditions.

Their recommendation to investors, accordingly, is to “retreat from risk assets and/or rotate into defensives.”

The strategists also named the segments they believe investors should favor:

  • Consumer staples
  • REITs (real estate investment trusts)
  • Small-cap stocks
  • Biotech
  • The US dollar

In the bank’s view, these assets could prove less vulnerable than financials, industrials, and semiconductors.

The flows in and out of each asset: stocks, ETFs, gold, crypto, bonds, cash

Bank of America’s advice comes at a moment when enormous amounts of cash continue to pour into markets.

In the first week of August, inflows into equities totaled 32.9 billion dollars, with 40.1 billion dollars flowing into ETFs and 7.2 billion dollars exiting mutual funds.

US equities, meaning Wall Street, drew 9.6 billion dollars, pushing total year-to-date inflows toward an annualized record of 652 billion dollars for 2026.

Weekly inflows into cash came in at 53.7 billion dollars and 23.1 billion dollars into bonds, while gold and cryptocurrencies attracted 0.9 billion and 0.6 billion dollars respectively.

Within fixed income, the cash that flowed into investment-grade rated bonds amounted to 10.2 billion dollars, for an annualized record of 527 billion dollars over the course of 2026, while 4.1 billion dollars went into high-yield bonds, a record since July 2024. Bank loans added a further 1.4 billion dollars, with flows running at the fastest annualized pace since 2021.

Long stocks, short bonds? What could threaten this asset allocation

There were also signs, Bank of America noted, of cooling in crowded trades, the market’s most heavily positioned corners, as other figures confirmed: technology funds saw outflows of 0.7 billion dollars, their first outflow in six weeks.

Semiconductor ETFs, meanwhile, were hit by 2.4 billion dollars in redemptions, although Bank of America stressed that inflows into the technology sector are still running at record levels, worth an annualized 217 billion dollars across 2026.

For all its statement that market optimism has reached its highest levels since 2021, Bank of America itself reaffirmed its “long stocks, short bonds” stance, meaning overweight equities and underweight bonds, since its analysts point out that the economy continues to be supported by spending from the wealth effect generated by rising stock markets and by the boom in capital expenditure on artificial-intelligence data centers.

The element to monitor, and what makes the bank’s analysts cautious, is nonetheless the combination of higher bond yields and a weaker dollar which, in their view, could push asset allocation to shift out of stocks and into bonds.

Another warning sign could come from the continued rise in bond yields and the decline in bank stocks, something Bank of America called the “canary in the coal mine,” as summed up in the following line. In their exact words: «Up-in-yields, down-in-banks’ will be the canary in the coal mine.»

Editor’s note

This article was originally published in Italian on money.it by Laura Naka Antonelli on August 10, 2026 as «Investitori mai così bullish dal 2021, parola di Bank of America. Come investire ora». It has been translated and adapted for an international audience by the Money.it International desk.