Bank of America is turning more cautious on stocks after a sharp deterioration in global market breadth pushed a key contrarian indicator back into focus.
The bank said a net 52% of global equity indices are now oversold, meaning they trade below both their 50-day and 200-day moving averages.
That is the highest share since April 2025.
But the weakness has not yet reached the extreme level Bank of America historically associates with a buying opportunity.
Under its so-called Breadth Rule, a formal contrarian buy signal is triggered only when a net 88% of markets fall below both moving averages.
In other words, markets are weakening broadly, but BofA believes they may need to deteriorate substantially further before conditions become washed out enough to flash a bullish signal.
For now, the firm remains cautious on risk assets over the next three to four weeks.
BofA cited real yields near 3%, its expectation for additional Federal Reserve tightening, geopolitical tensions and oil-market risks, as well as weakness among companies funding and supplying the AI investment boom.
The bank also included U.S. political uncertainty around the midterm elections among the risks in its outlook.
One potential offset could come from bonds.
BofA argues that a Fed hike could reinforce inflation-fighting credibility and potentially push longer-term Treasury yields somewhat lower afterward, which could limit pressure on equities if concerns around AI financing also ease.
Investor Takeaway
I think the most interesting part of BofA’s call is the gap between 52% and 88%.
Breadth has weakened enough to deserve attention, but it is still far from the level that historically activates the bank’s contrarian buy signal.
That suggests stocks may be entering an uncomfortable middle ground: weak enough to raise near-term risk, but not yet washed out enough to generate the kind of extreme pessimism contrarian investors typically want.
For investors, the key things to watch are how many markets fall below long-term moving averages, Treasury yields, Fed guidance and whether weakness in AI-related stocks spreads into the broader market.
If breadth deteriorates toward BofA’s 88% threshold, the selloff could eventually create a stronger contrarian setup. For now, the bank is signaling caution rather than capitulation.
