BofA The Flow Show: Materials as the New Bull Trade

Bank of America argues that the dominant market narrative is broadening beyond technology. Materials, commodities, emerging markets, and small caps are entering a period of relative structural outperformance. Notably, the materials sector represents merely 2% of the S&P 500 market capitalization, near three-decade lows, despite facing robust demand drivers. These include escalating geopolitical competition for natural resources, global defense spending approaching $3 trillion, rising AI capital expenditures of $750 billion, US housing shortages exceeding 4 million units, and the implicit appreciation of the Chinese renminbi.

Latest cross-asset flow data reveals significant weekly inflows into cash at $136 billion, investment-grade bonds at $16.4 billion, and equities at $2.6 billion. Meanwhile, emerging market and Chinese equities experienced continued outflows. BofA's private client allocation shows equities at a multi-year high of 65.3%, while cash holdings dropped to a record low of 9.9%.

The BofA Bull & Bear Indicator rose rapidly from 6.6 to 7.2, signaling warming sentiment while remaining technically neutral. Global breadth approaches critical levels. If the NYSE index forms a double top in coming weeks, it would suggest central banks are turning hawkish to suppress nominal boom conditions. The firm suggests a barbell strategy: holding crowded AI alongside underowned cyclical assets, while avoiding bonds since rising yields have historically ended late-cycle bubbles.

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