Bank of America strategist Michael Hartnett warned that while investors appear unshaken by long-term Treasury yields near 5%, conditions that have historically ended bull markets are beginning to appear. In his weekly Flow Show commentary, Hartnett described investors as "frozen bullish," maintaining allocations that reflect late-cycle appetite for risk even in the face of higher long-end yields.
Hartnett identified three specific forces that have in past cycles produced the collapse of booms and bubbles. First, bonds can forcefully raise the cost of capital, creating a punitive environment for valuation-sensitive assets. Second, market leaders can falter - a development Hartnett suggested would be concerning if the now-lower-priced Magnificent Seven ETF (NYSE:MAGS) fails to hold $65. Third, elections can reshape economic policy as voters press for more jobs or lower inflation, with those pressures potentially altering central bank trajectories.
"We’re getting there," Hartnett wrote, "but for now asset allocation frozen bullish, positioned for late-cycle greed, not at all tempted by 5% yields at the long-end." The strategist drew a parallel to 1994 as a cautionary analogue for what could unfold in 2026. In 1994, extended monetary easing followed by an unexpectedly strong payroll print prompted a delayed Federal Reserve response that turned into aggressive tightening, precipitating a protracted trading range for equities until yields stopped climbing later in the year.
Hartnett pointed to current inflation and labor readings as relevant data for that analogy. The U.S. consumer price index has averaged 0.5% month-on-month over the past six months, a pace that would put annualized inflation on track to top 5% by the midterm elections if sustained. Meanwhile, the unemployment rate sits at 4.3%, narrowly above the 4.2% CPI figure Hartnett highlighted. Historically, such a gap has coincided with periods of Federal Reserve tightening, outcomes that have generally been poorly received on Wall Street.
On market flows, the BofA Bull & Bear Indicator nudged up to 8.8 from 8.7, prolonging a sell signal for a fourth straight week. That deterioration reflects a mix of record inflows into technology equities that were partially offset by outflows from high-yield and emerging-market bonds. For the week ended June 10, equity funds attracted $31.5 billion, driven by an unprecedented $12.3 billion into technology funds. Within those tech flows, the Direxion Daily S&P500 Bull 3X Shares ETF (NYSE:SPXL) gathered $3 billion and the iShares Semiconductor ETF (NASDAQ:SOXX) took in $2.9 billion.
U.S. equity inflows extended to 11 consecutive weeks, the longest run since December 2025, while emerging market equities recorded their first inflow in nine weeks at $4.5 billion. Korean equities alone drew $5.9 billion, the largest weekly inflow since March. Conversely, several asset classes experienced notable outflows: crypto registered a record $6.6 billion of redemptions over five weeks, gold endured a fourth straight week of outflows totaling $2.3 billion, and money market funds saw $2.5 billion leave.
Taken together, Hartnett’s note frames a market where investor positioning remains firmly bullish despite rising long-term yields, but where structural signals that have historically ended bull runs - higher bond-imposed capital costs, potential leadership weakness, and election-driven policy shifts - are increasingly visible.