BofA strategist says sell signal is getting closer

Michael Hartnett believes global equities rally is unsustainable.

The rally in global equity markets is at risk of overheating, according to Bank of America Corp. strategist Michael Hartnett.

The bank’s so-called global breadth rule shows that about 71% of equity indexes are trading above both their 50- and 200-day moving averages. A reading above 88% would trigger a contrarian sell signal, Hartnett wrote in a note. The strategist has taken a more neutral tone on stocks this year. He was broadly bearish in 2023, even as the S&P 500 rallied 24%.

After faltering in April, the MSCI All-Country World Index scaled record highs again this month on optimism that the Federal Reserve would be able to start cutting interest rates later this year. About 68% of the index’s constituents are trading above their 200-day moving average, according to data compiled by Bloomberg, as the rally broadens beyond the US technology behemoths.

But the index retreated this week as robust economic data stokes fresh doubts about the outlook for monetary easing. The global benchmark is on track for its first weekly decline in five.

Barclays Plc strategists said the rally was starting to “look tired.” Stretched positioning and seasonal trends could keep stocks treading water as the corporate earnings season winds up, they wrote in a note.

Meanwhile, the note from Bank of America, citing EPFR Global data, showed all major asset classes recorded inflows in the week through May 22. Global equity funds had additions of $10.5 billion, while $12.5 billion went into bond funds.