The US stock market is considered ripe for profit-taking in early June due to heavy investor crowding into equities and rising inflation risks, Bank of America (BofA) strategists said [1, 2]. Since March 30, the S&P 500 and Nasdaq 100 have rallied 18% and 29% respectively, marking a strong run that some investors may seek to exit [2].
Rising inflation is a key concern. US wholesale inflation accelerated to 6% in April, the fastest pace since 2022, driven by war-related energy price hikes that also pushed up freight costs [2]. The consumer price index (CPI) in April rose 3.8%, exceeding estimates [2]. BofA projects CPI could surpass 5% by the November midterm elections if monthly price gains do not slow [2].
Michael Hartnett, BofA's chief investment strategist, said, "Bull capitulation into stocks and tech likely fully complete in next few weeks, early June ripe for taking some off table" [2]. He added, "A scenario where CPI climbs above 4% is where risk assets get twitchy," referencing historical trends where CPI above 4% correlates with an average 4% S&P 500 decline over three months and 7% over six months [2].
Price pressures are widespread, affecting energy, transportation, and rents, and pushing 10-year Treasury yields above 4.5% and 30-year yields beyond 5%, levels Hartnett described as critical thresholds [1, 2].
Private clients at BofA currently hold a record-high 65.7% allocation to US stocks, with cash levels at a historic low of 9.8%, suggesting many investors are heavily invested in equities [2].
Key events in June that could add to market caution include an OPEC meeting, the start of the World Cup, the G7 summit, and the first Federal Reserve Federal Open Market Committee meeting under new chair Kevin Warsh [2]. These factors contribute to expectations that early June may bring increased volatility and profit-taking [1, 2].
Investors will be closely watching inflation data and market reactions through June as these events unfold.
