BofA Strategist Sees Big Stock Rally, Then Big Collapse

He said bears like him have been wrong in the first half because the US economy avoided a recession and a credit crunch, and called the AI-powered tech rally an "unanticipated event."

Until the Federal Reserve "reintroduces fear" via a higher target for interest rates and unemployment rate exceeds 4% in a recession signal, stocks can stay higher and credit spreads can remain low, he wrote.

At the same time, Citigroup Inc. strategists led by Beata Manthey said the U.S. market can continue to outperform European peers, even though the rally is led by relatively few stocks.

They said that historically, the S&P 500 and growth shares tend to outperform following a narrowing of breadth.

"We find that narrowing leadership alone is not a reason to the sell the market; stocks trade higher on average after markets narrow, though volatility also rises," said Citi strategists in a note.

Weekly asset flows highlights from BofA's note citing EPFR Global include:

• Equities had about $22 billion inflows in the week through June 14, while bonds had $6.7 billion of additions;
• Among equity regions, U.S. stocks led inflows at $23.8 billion, followed by Japan at $2.2 billion of additions, EM stock funds had $1.1 billion inflows, while Europe saw $2.4 billion of outflows;
• Tech led inflows among sectors, while utilities led outflows.

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