Bank of America warned on Friday that there are “too many red flags” surrounding U.S. stocks. Of the 10 bear market signals tracked by the bank, seven were triggered in May, up from five in April and four in March. “While we see an opportunity for the S&P 500, we don’t see an opportunity for the market-cap weighted index as a whole,” Bank of America strategist Savita Subramanian wrote in a letter to clients on Friday. “Our year-end target of 7100 for the S&P 500 suggests a 6% decline from here.” Recent signs of a turn to the red are that the spread between the best and worst performing stocks in the S&P’s technology sector and the overall index’s growth expectations are significantly higher than the past five-year average. The difference between the median stock price of the best-performing quintile and the worst-performing quintile in the tech sector is a “whopping” 120 percentage points, the highest since February 2000, at the peak of the Internet boom. Subramanian said technology spreads were “comparable to the dot-com bubble,” noting that they reached 130 points just before the market peak on March 24, 2000. The growing concentration of profits has worried many Wall Street analysts in recent weeks, and is reflected in a variety of indicators. For example, the S&P 500 ended the month of May at an all-time high, but only a handful of stocks set new all-time highs. The rise/fall line, which compares the number of advancers and decliners in the S&P, shows a similar trend. Chip stocks sold off heavily on Thursday and Friday after rallying in April and parts of May. Part of the selloff was driven by chipmaker Broadcom’s Wednesday earnings report, which left its revenue forecast from artificial intelligence unchanged. But other analysts on Monday saw last week’s decline as a sign of the chip sector’s health. “We view the recent group pullback as healthy and maintain AVGO, TXN and AMAT as top stocks to buy,” Atif Malik wrote for Citigroup on Monday.
