Morgan Stanley Advises Shifting to Defensive Assets Amid Market Extremes

Huoxing Finance reports that on July 19, Bank of America’s Chief Investment Strategist Michael Hartnett issued a new warning: the bank’s proprietary Bull-Bear Indicator has surged to an extreme historical level of 9.6. The latest fund manager survey reveals that current investor optimism rests on four core assumptions: no hard economic landing, no Fed rate hikes, no cut in AI capital expenditures, and no Democratic sweep in the midterm congressional elections. Hartnett refers to this combination as “no landing, no hike, no cut, no sweep”—the very reason there are almost no short sellers left in the market. Latest fund flow data corroborates this extreme market exuberance: U.S. equities saw a net inflow of $55.8 billion, while money market funds experienced a massive net outflow of $119.6 billion—the largest weekly cash withdrawal since April 2026. Technology stocks recorded a record-breaking $48.8 billion in cumulative inflows over three weeks. Hartnett describes this as an institutional-driven, all-in momentum rally. He recommends decisively exiting risk assets this summer and shifting into longer-duration Treasuries, defensive sectors, high-dividend stocks, and the U.S. dollar. He identifies the MAGS ETF, representing major U.S. tech giants, as a key indicator: if MAGS falls below $65, it could trigger broad pressure across cyclical sectors; if it breaks above $70, it would signal a re-entry opportunity. The greatest tail risk lies in the possibility that if major tech firms announce significant cuts to AI capital spending—and this move fails to propel the Mag7 to new highs—the resulting negative shock to growth and asset prices could trigger widespread short-selling in banks, brokerages, and industrials.