Oil Climbs, Stocks Struggle After US Launches New Strikes on Iran as BofA Urges Investors to Book Profits

Oil prices bounced back after the US launched fresh strikes against Iran after a US Apache helicopter was downed, posing a threat to the fragile truce between the countries. Brent crude climbed as much as 2% to above $93 per barrel, while West Texas Intermediate surged to $90 a barrel.

US Central Command said in a brief statement that the 'self-defense strikes' on Iran were a 'proportional response' to unjustified Iranian aggression. Meanwhile, Iran's state-run media outlet reported that Qeshm Island in the Strait of Hormuz was struck by the US.

US equity indexes were also mixed, with the S&P 500 down 0.2% on Tuesday and Nasdaq losing over 1.1%. However, the Dow Jones Industrial Average index rose by a meagre 0.1%. Meanwhile, gold prices also extended its decline, as bullion fell 1.3% to $4,205 per ounce.

Gold prices are at about a fifth below where it was before the onset of the Middle East conflict in late February. Gold's decline through its 200-day moving average has driven further selling, given that the metric is viewed as an important gauge by institutional investors.

BofA Urges Investors to Pull Out of Markets

Bank of America said in a recent research note to clients that a growing number of 'bear market signposts' are indicating that the stock market could be reaching its crest and investors should book profits now before a considerable market correction.

Seven of BofA's 10 bear market indicators were triggered in recent months, while five of them were triggered in April and two indicators flashed red in May. The indicators cover data, including consumer confidence, stock price expectations, credit stress levels, M&A landscape, long-term growth forecasts, as well as credit tightening conditions.

BofA's 'cheap vs. expensive stock' indicator also revealed that high price-to-earnings ratio stocks led low P/E stocks by a significant margin, which is 'a sign of excessive speculation.' Elsewhere, 'long-term growth expectations' have surpassed levels consistent with stock being 'more vulnerable to disappointment.'

According to BofA, although the S&P 500 has gained 8% year-to-date, the benchmark is 'statistically expensive on 17 of 20 metrics, and trades rich versus its tech bubble metrics on eight.'

Tech Sector Fundamentals Waning

While tech sector fundamentals appear healthier than they were before the dot-com crash, many of those indicators are worsening as cash flow conversion has remained muted, buyback as a percentage of market capitalisation have slumped, and capex as a percentage of operating cash flow for hyperscalers could reach near 100% by 2026-end.

'Extreme price action may signal rising instability. We see opportunity in S&P 500 stocks, but not the overall cap-weighted index,' BofA stated, adding that the indicators point to a broader market downturn.

BofA expects S&P 500 at 7,100 points by the end of the year, compared with 7,400 points on Monday. With blockbusters IPO on the horizon, starting with SpaceX this week, markets are increasingly looking at these events as potential stock market drivers and wealth creations opportunities.

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