Stock market is approaching a tipping point that marked prior peaks, BoA warns
The stock market is inching closer to flashing a full warning sign of a potential peak, as conditions start to resemble those seen before past downturns, according to Bank of America Global Research.
Roughly 60% of the firm’s ten market “signposts,” indicators spanning sentiment, valuation, and macroeconomic factors, are currently triggered.
That’s not far from the roughly 70% level typically reached ahead of previous market tops, including those in October 2007, September 2018, February 2020, January 2022, and February 2025, the bank said.
The data suggest the risk of a market peak is rising, though it’s not yet a sure thing.
Among the warning signs flashing red are a surge in investor optimism about stock gains, an uptick in merger and acquisition activity, and stock valuations that look stretched compared to historical averages.
Other signals include cheaper stocks lagging behind expensive ones, rising credit stress, and signs that financial conditions are tightening.
BoA’s Savita Subramanian warned in a separate report that several key valuation measures for the S&P 500, including market capitalization to GDP, price-to-book ratio, price-to-operating cash flow, and enterprise value-to-sales, have all climbed to new highs.
The warnings arrive as the S&P 500 Index extends a more than 32% rebound from its April “Liberation Day” low, with mounting worries that AI-driven enthusiasm has pushed tech valuations too far, too fast.
Analysts continue to warn that the S&P 500 looks “frothy”
Bank of America isn’t the only one warning of a potential peak in the current market cycle.
U.S. Bank Asset Management Group struck a more optimistic tone in its latest outlook but urged investors to stay diversified and focused on long-term goals amid ongoing turbulence and shifting expectations around Federal Reserve policy.
Tom Hainlin, the bank’s national investment strategist, said investors are still assessing whether higher tariffs will lead to higher prices for goods and services at home.
“We’ve seen modest acceleration in core goods prices, and investors should expect some additional inflation in coming months,” he said.
Earlier this week, Morgan Stanley CIO and chief equity strategist Mike Wilson offered a similarly upbeat view on stocks but cautioned that markets “are a bit frothy at the moment.” He added that a 10% to 15% correction in the S&P 500 Index wouldn’t be abnormal in the short term.
Wilson pointed to several emerging risks in the stock market, including escalating U.S.-China trade tensions, rising stress in short-term funding markets, and the potential for earnings disruptions tied to new tariffs.