Bank of America Warns AI Surge and Inflation Push Markets to Dangerous Levels; Signals Early June Exit

According to Bank of America Chief Investment Strategist Michael Hartnett's latest Flow Show report on May 15, AI enthusiasm, rising inflation, and "chasing" capital inflows are driving markets toward dangerous territory. Hartnett noted that U.S. PPI rose to 6% year-over-year and CPI to 3.8% year-over-year, both above expectations. If inflation maintains current pace over coming months, U.S. CPI could exceed 5% before the November midterm elections. Hartnett identified CPI surpassing 4% as a critical risk threshold, with historical data showing that when inflation exceeds 4%, the S&P 500 averages a 4% decline over 3 months and 7% decline over 6 months.

Bank of America's bull-bear indicator has risen to 7.6, approaching the 8.0 sell signal zone. The semiconductor index (SOX) is 62% above its 200-day moving average, surpassing levels seen during the internet bubble. Globally, equity funds saw $20.5 billion in inflows last week, while crypto funds recorded $1.3 billion in outflows, the largest weekly outflow since February 2026.