Bank of America's strategist Michael Hartnett recently discussed the current status of the equity market, highlighting that the classic markers of a market peak have yet to align in 2026. Typically, such peaks coincide with three primary conditions: overstretched bullish positioning, high investor expectations for profit growth, and tightening monetary policy. Of these, Hartnett points out that only two factors are currently observed – positioning remains elevated, and earnings optimism is still strong. Critically, the tightening of policy, often characterized by interest rate increases or a restrictive stance from central banks, is missing from the present environment.
Hartnett explained in a communication to clients that the absence of monetary tightening differentiates 2026 from previous market peaks seen in years like 2018 and 2022. The supportive policy landscape, underpinned by anticipated rate cuts from the Federal Reserve and efforts such as fiscal stimulus via tax and tariff reductions, sustains a more accommodative financial climate. Given this backdrop, Hartnett and his colleagues suggest investors have limited incentive to exit markets until financial conditions tighten significantly.
Highlighting a vital indicator of monetary policy impact, Hartnett points to the 30-year U.S. Treasury yield and specifies that a rise above 5.1% would mark a tipping point toward tighter money conditions. Such an increase would align with past market panic points, notably those observed in October 2023 and May 2025.
Expanding beyond equities, Hartnett maintains a positive outlook on gold, reinforcing its status as an under-owned hedge amid ongoing global shifts. He notes that the metal's secular bull market persists in light of factors including global geopolitical changes, currency weakening, populism, and fiscal excess. Hartnett argues that significant catalysts that historically end major gold rallies are not currently evident.
Moreover, Hartnett expresses a bullish long-term perspective on Emerging Markets (EM), describing them as entering a new secular bull phase within international equity markets. Contributing factors include strong commodity prices, the appreciation of EM currencies, and declining bond yields, all of which could support a phase of relative outperformance for EM stocks.
Regarding recent investment fund flows, Bank of America reports that bond funds attracted $15.4 billion in inflows last week, while gold funds saw inflows totaling $4.9 billion. In contrast, equity funds experienced outflows amounting to $43.2 billion. The decline in equities was notably driven by a record $49.2 billion withdrawal from Chinese equities linked to "national team" selling, alongside $16.8 billion leaving U.S. stocks and the first outflow from emerging market equities in 13 weeks.
Conversely, Europe continued to experience capital inflows for a sixth consecutive week, and Japan recorded its largest investment inflow since October, signaling selective regional interest despite broader equity outflows.