BofA's Sell Side Indicator hit its highest level since February 2025, a point that preceded a 1,000-point S&P drop, as the bank set a 7,100 target and urged investors to "sell in June."
Summary: Source: Bank of America, strategists led by Savita Subramanian and Victoria Roloff
- BofA's Sell Side Indicator ended May at 56.2%, its highest reading since February 2025, a level that preceded a fall of more than 1,000 S&P 500 points
- The bank holds a price target of 7,100 on the S&P 500, implying a near-7% decline from Friday's close, with strategists explicitly advising investors to "sell in June"
- The recent rally has been heavily concentrated in mega-cap names, leaving a large share of index constituents lagging
- BofA remains broadly bullish on tech but warns of an "air pocket" forming, with growth expectations near record highs and multiples still elevated relative to the S&P 500
- Analysts favour capex recipients such as semis and hardware over the five major hyperscalers, whose combined AI spending plans total $725 billion this year and have shifted them from capital-light to leveraged businesses
Bank of America is warning that elevated Wall Street optimism is approaching the kind of reading that has historically preceded sharp market pullbacks, with the bank's Sell Side Indicator closing May at its highest level since February 2025, a point that came just before the S&P 500 shed more than 1,000 points.
The indicator, which tracks recommended equity allocations across Wall Street strategists, ended the month at 56.2%, lifted by a rally of nearly 20% on the S&P 500 that has pushed market sentiment well above the cautious levels seen earlier in the year. Equity and quant strategist Victoria Roloff noted the reading underpins BofA's view that investors should "sell in June," with the bank's S&P 500 price target of 7,100 implying a decline of nearly 7% from Friday's close.
The warning is not a call for panic. BofA describes the current mood as more bullish but not euphoric, a distinction that matters for how aggressively investors should act on the signal. But the bank is clear that the conditions for a correction are assembling. The rally has been narrow, concentrated in mega-cap names, with a large share of index constituents still lagging the headline gains.
Within that broader caution, BofA's sector-level message has a sharper edge on technology. Chief US equity strategist Savita Subramanian flagged an "air pocket" forming in the trade, driven by the transformation of the five largest AI hyperscalers, Amazon, Alphabet, Meta, Microsoft and Oracle, from capital-light compounders into leveraged, capital-intensive businesses. Their combined AI spending plans for this year stand at $725 billion. Subramanian compared the resulting capital economics to those of oil companies, with the spread between return on invested capital and cost of capital narrowing and the margin for error shrinking.
BofA's recommended positioning reflects that tension: own the recipients of that spending, semiconductors and hardware, and reduce exposure to the spenders themselves.
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The Sell Side Indicator sitting at its highest since February 2025 is significant context for positioning: that prior peak preceded a drawdown of more than 1,000 points on the S&P 500. BofA's 7,100 price target implies a decline of nearly 7% from Friday's close, a gap that would represent a meaningful correction from current levels. The concentration of the recent rally in mega-cap names, with much of the broader index still lagging, amplifies the vulnerability if sentiment turns. For tech specifically, the rotation BofA is recommending, out of hyperscaler spenders and into semiconductor and hardware recipients of that capex, has direct implications for names across both ends of the AI trade.
