Bank of America (BofA) has sounded the alarm on the US stock market, warning investors of several warning signs that have appeared before previous bear markets. Despite major US stock indexes trading near record highs, BofA's strategists led by Savita Subramanian have advised investors to consider taking profits due to the presence of 'too many red flags' in the market.
The bank noted that around 70% of the warning signals that usually appear before a bear market have now emerged, a level close to the average seen during previous market peaks. Furthermore, the S&P 500 is currently overvalued on 17 out of 20 valuation measures, with 8 of those measures being even higher than they were during the Dot-com bubble.
Tech stocks have been performing particularly well, with the top 20% outperforming the bottom 20% by a huge margin. BofA analysed technology stock performance data from 1986 through May 2026 and found that the performance difference between the top 20% and bottom 20% of US technology stocks has reached its widest level since February 2000.
Subramanian said the strong gains in the S&P 500 are hiding weakness beneath the surface of the market, with the performance gap between the top 10% and bottom 10% of S&P 500 companies jumping to its highest level since the COVID-19 pandemic.
Despite the warning signs, BofA still sees stock opportunities among individual S&P 500 companies, but does not see the same opportunity in the market-cap-weighted S&P 500 index as a whole. The bank's S&P 500 target for the end of the year remains about 4% below the index's recent closing level.
