Michael Hartnett: Market sentiment is overheated, suggesting a shift from risk assets to defensive assets this summer

Michael Hartnett, Chief Investment Strategist at Bank of America, stated that the bank's Bull & Bear indicator surged to the extreme level of 9.6. Investor optimism is based on four assumptions: no hard landing for the economy, no Fed rate hikes, continued AI capital expenditure, and Democrats not sweeping Congress. U.S. equity assets saw a net inflow of $55.8 billion, while money market funds recorded a net outflow of $119.6 billion. The technology sector experienced an inflow of $48.8 billion over three weeks. Michael Hartnett suggests withdrawing from risk assets this summer and shifting towards long-duration Treasury bonds, defensive sectors, high-dividend stocks, and the U.S. dollar. If MAGS falls below $65, it will drag down cyclical sectors; breaking above $70 would signal entry. The greatest tail risk lies in ultra-large tech companies cutting AI capital expenditure and failing to push Mag7 to new highs.