June 5: Bank of America told investors “take profits.” Nasdaq slid 7%

On June 5, Bank of America told investors to “take profits.” By the end of the week, the Nasdaq was down about 7% from its own June 1 peak. The sequence matters because the warning did not read like a vague market mood. It was a checklist. And it hit at least part of what it predicted, right as the “worst chip rout since 2020” unfolded.

Subramanian, who leads Bank of America’s strategy team, flagged seven bear-market signposts across the firm’s view of sentiment, valuation, and macro conditions. Five of them were already triggered by April, and two more arrived in May, with clients urged to trim winners. The S&P 500 record came on June 1, just four sessions before Subramanian’s note. By Wednesday’s close, the S&P 500 was down about 4.5%, to 7,267. At the same time, the firm’s year-end target for the S&P 500 was 7,100, which was below the level it was trading at when the note was published (7,367). That makes the note look eerily well-timed, even if it was always framed as caution rather than prophecy.

So what was actually flashing? Bank of America tracks 10 conditions that tend to all trigger before an S&P 500 peak, and it grouped them by sentiment, valuation, and macro. Two valuation signals were “lit.” The first is the Rule of 20: add the market’s price-to-earnings ratio to the inflation rate, and if the sum is above 20, stocks are considered expensive. In this case, the market paired a trailing P/E ratio above 30 with inflation over 4%, putting the total well above 20. The second valuation signal looks at how stretched the spread is between the priciest stocks and the cheapest. That gap has widened to an extreme, which BofA reads as speculation, especially in the types of winners that drove the rally, like semiconductors and memory.

BofA’s broader valuation read is even starker: the index is described as expensive on 17 of 20 metrics, including eight metrics said to be richer than the dot-com peak. On top of that, three of five sentiment gauges tripped. Investors expected stocks to keep rising. Analysts had penciled in long-term earnings growth so high that even a slight miss would disappoint, including the nuance that even a beat may not satisfy “up-to-expectation” expectations, as the note frames it. And dealmaking was described as booming, which historically can align with tops when money is cheap and executives are confident enough to take bigger swings.

Then came the part executives should care about because it ties the market story to the plumbing. BofA also flagged two credit signals. One is stress in corporate borrowing markets. The other tracks whether banks are making credit harder to get, based on the Federal Reserve’s survey of loan officers. The underlying logic is simple and important: trouble often shows up in credit before it shows up in stocks. That does not guarantee a crash. But it does suggest that risk may be repricing beneath the surface, especially for leveraged strategies and crowded trades.

The tape matched that risk story, and leverage made the move messier. Many of the funds that took the hardest hits were the most leveraged. The Direxion Daily Semiconductor Bull 3X fund returned 75.9% in May, yet still bled $4.1 billion in assets during May, marking a second straight month of outflows as traders cashed out of the year’s defining rally. On June 5, the Philadelphia Semiconductor Index fell 10.3%, its worst day since 2020. The source links the move to Broadcom’s cautious guidance and what it describes as a “memory glut,” giving the crowd a reason to sell. More than $1 trillion in market value evaporated in a single session.

Within that broader selloff, memory was the epicenter. Micron was hit hardest, and the pattern was telltale: a Monday bounce faded by Tuesday, and by Wednesday the indexes were lower again before rebounding on Thursday on stabilizing news in Iran. At the same time, rotation signals were clear. The market was moving out of high-beta tech winners and into the “boring stuff.” One datapoint: while stocks fell Wednesday, nearly 63% of issues still rose, even as the Dow shed about 950 points. Bank of America also said the spread between the best- and worst-performing tech stocks was the widest since February 2000.

Not everyone interpreted the signposts as destiny. Morgan Stanley called the selloff “healthy,” arguing that leadership change in tech could extend the bull market rather than end one. Its strategists also saw the S&P 500 reaching 8,000 by year-end, assuming money broadens out beyond memory and semiconductors into the rest of the market. And there were near-term calendar factors that can distort timing, like traders clearing space for Friday’s SpaceX IPO, described as the largest in history at roughly $1.77 trillion, slated to start trading the next morning on the Nasdaq as SPCX, with Anthropic and OpenAI lined up behind it.

Still, the decision-makers angle is the same across both bullish and cautious camps: when valuation extremes, sentiment stretch, and credit caution align, risk can rise faster than narratives. Subramanian’s line, quoted in the source, was that bear-market signposts that typically precede an S&P 500 peak suggest additional caution may be warranted. For executives and board members watching their cost of capital, their stock-based incentives, and their market access windows, the key lesson is not “the note was right.” It is that the market was already living inside multiple warning lights, and the exit trade came quickly once one pushed it over the edge.