The S&P 500 closed May at a record high. Bank of America says that is part of the problem.
The bank put it bluntly. It told clients there are too many red flags over U.S. stocks right now.
Bank of America tracks 10 warning signs that tend to flash before a bear market. A bear market is a drop of 20% or more from a recent high.
Seven of those signs went off in May. That is up from five in April and four in March.
The climb is the scary part, since it shows pressure building month after month.
Seven matters on its own too. It is the average count seen right before past market tops since 1990.
Strategist Savita Subramanian is not telling people to sell it all. She still likes some single stocks, just not the market as a whole.
Her year-end target for the index is 7,100, which sits about 6% below the price today.
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The newest red flag is the gap between tech's winners and losers. That gap just hit about 120 points.
It is the widest since early 2000, the top of the dot-com bubble. The same gap hit 130 points right before the market peaked in March 2000.
Here is the worry. A few giant stocks are carrying the whole market, and that makes the gains easy to break.
Think of a team where a few stars score every point. It works until one of them gets hurt.
When the market rises on just a few names, traders call it narrow. Narrow markets often look strong on top but weak underneath.
The breadth numbers say the same thing. The S&P hit a record in May, but only a few stocks hit highs of their own.
There is another way to see it. Fewer and fewer stocks are taking part in the climb.
One more sign turned red, as hopes for company growth jumped well above their five-year average.
Not everyone sees a warning. Chip stocks fell hard last week after Broadcom held its AI sales forecast flat instead of raising it.
Broadcom is one of the biggest names in AI chips. So when it stayed quiet on growth, traders took it as a yellow flag.
The drop came after a hot run, since chip stocks had climbed through April and early May.
Citigroup read it the other way. It called the drop healthy and kept Broadcom, Texas Instruments, and Applied Materials as top picks.
The line between a normal stock market correction and a real bear market comes down to how deep and how long the drop runs.
Two of Wall Street's biggest research teams see the same market and read it in opposite ways.
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