Bank of America says stock market rally is over

Bank of America doesn’t think this year’s stock rally is going any higher. Michael Hartnett, one of the firm’s top strategists, said the rebound already happened, and now it’s just flatlining.

Hartnett wrote in a note on May 8 that the rally was “correct,” based on optimism around tariff cuts earlier in the second quarter, but that the game is basically over. He said traders followed the usual playbook: “buy the expectation, sell the fact.” And now they’re selling.

The strategist pointed to the S&P 500, which shot up 14% after President Donald Trump announced a pause in some tariffs on April 9. But even after that boost, the index is still down 3.7% for the year.

That puts it behind foreign markets, which Hartnett says are looking better. He now favors bonds over stocks and prefers international equities instead of US ones, saying American assets are stuck in a “late-stage structural bear market.”

Investors pull out cash as Trump signs UK deal

Bank of America backed up Hartnett’s call with real money flow numbers. In the last four weeks, investors have yanked $24.8 billion from US stocks, the biggest exit in two years. The data came from EPFR Global, and it shows that people aren’t sticking around to see what happens next. They’re out. And that exodus fits right into Hartnett’s warning that this isn’t the time to be chasing stocks anymore.

At the same time, the White House has started cooling down on the trade war language. Officials are considering serious tariff cuts during weekend talks with China. On Thursday, Trump also dropped a trade framework with the United Kingdom, calling it a “breakthrough.”

It’s the first deal the US has made with any country since Trump started pushing the idea of “reciprocal” tariffs. But even this one comes with strings. Trump said the UK would still face a 10% base tariff, and that other countries with big trade surpluses would pay even more.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the UK deal matters more as a test run than as a big economic win. 

“While trade with the UK pales in comparison to trade with our neighbors to the North and South, and especially in comparison to China, it is an important test case and a model for what could be accomplished,” Chris said.

Traders stay cautious despite market bounce

Even though Hartnett is bearish, the market still moved after Trump made his comments. When he said he expects US officials to have a “good weekend” in China trade talks, all three major indexes climbed. 

The Dow Jones rose 0.6%, the S&P 500 added nearly 0.6%, and the Nasdaq Composite jumped 1.1%. But the excitement didn’t last. By Friday morning, futures were barely moving.

Futures tied to the Dow dropped by 16 points, or 0.04%. Nasdaq 100 futures went up just 0.12%, and S&P 500 futures moved 0.04% higher. Traders weren’t placing big bets. Everyone’s waiting to see if Trump’s optimism about China turns into real progress, or if it’s just another weekend of talk.

The numbers for the week show how cautious the market still is. The S&P 500 is headed for a 0.4% loss. The Nasdaq looks set to fall 0.3%, and only the Dow is hanging on with a tiny 0.1% gain, which would make this its third positive week in a row.

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