For much of 2026, investors have been rewarded for buying every dip.

The S&P 500 continues to hover near record highs, artificial intelligence stocks remain market favorites, and many analysts are still forecasting gains into year-end.

But one of Wall Street’s largest banks is now warning that investors may want to become more selective.

Bank of America says a growing number of market indicators are flashing caution signals, with several measures now reaching levels that historically appeared before major stock market pullbacks.

The firm’s latest research suggests the market may be entering a phase where broad index gains become harder to achieve and stock selection becomes increasingly important.

Seven Bear Market Signals Have Been Triggered

According to Bank of America strategist Savita Subramanian, seven of the bank’s 10 bear market signposts were triggered in May.

That number is significant because seven is also the average reading observed before previous bear markets dating back to 1990.

The progression has accelerated over the past several months:

March: 4 signals triggered
April: 5 signals triggered
May: 7 signals triggered

The rapid increase has raised concerns that investors may be underestimating risks building beneath the surface of the market.

“We see opportunity in S&P 500 stocks, but not the overall cap-weighted index,” Subramanian wrote in a note to clients.

Bank of America currently has a year-end S&P 500 target of 7,100, implying roughly 6% downside from current levels.

While that forecast does not call for a market crash, it suggests limited upside and increasing vulnerability after a powerful rally.

The Tech Sector Is Showing Dot-Com Era Characteristics

One of the most alarming signals identified by Bank of America comes from within the technology sector.

The performance gap between the strongest and weakest technology stocks has reached approximately 120 percentage points.

According to the bank, that is the widest spread since February 2000, just weeks before the bursting of the dot-com bubble.

The only period that exceeded today’s reading was shortly before the market peak on March 24, 2000, when the spread reached 130 percentage points.

Subramanian described the current divergence as one that “rivals the dotcom bubble.”

The warning is not necessarily that a crash is imminent. Instead, it suggests investors are crowding into a relatively small group of winners while ignoring large portions of the market.

Historically, that type of concentration has often emerged late in market cycles.

A Handful of Stocks Are Carrying the Market

Another concern involves market breadth.

While the S&P 500 finished May at record highs, relatively few individual stocks were setting new highs alongside the index.

This phenomenon has become increasingly common during the current rally.

When a market advance is healthy, gains tend to be broadly distributed across many sectors and companies.

When only a small number of stocks are responsible for most of the gains, investors begin to question the sustainability of the rally.

Market breadth indicators such as advance-decline lines have also weakened.

These measures compare the number of stocks rising versus those falling.

A narrowing advance often suggests institutional money is becoming more selective and defensive even as headline indexes continue moving higher.

AI Growth Expectations May Be Too Optimistic

Another warning sign involves expectations for future earnings growth.

Bank of America notes that growth expectations for the broader S&P 500 have climbed significantly above their five-year average.

While stronger earnings forecasts can support higher stock prices, excessively optimistic projections can become dangerous if companies fail to deliver.

The AI boom has fueled much of the market’s enthusiasm over the past year.

Investors have poured billions into companies expected to benefit from data center expansion, semiconductor demand, and enterprise AI adoption.

The question now is whether future growth expectations have become too aggressive.

If earnings fail to keep pace with current valuations, stock prices could face pressure even if business conditions remain healthy.

Chip Stocks Suddenly Lose Momentum

Recent trading activity in semiconductor stocks highlights this growing uncertainty.

After leading the market higher throughout April and much of May, many chip stocks sold off sharply last week.

The decline was partly triggered by earnings from Broadcom, one of the key beneficiaries of the AI infrastructure boom.

While Broadcom reported solid results, investors were disappointed that the company maintained its AI revenue outlook rather than raising guidance.

In today’s market environment, simply meeting expectations may no longer be enough.

The reaction sparked selling across portions of the semiconductor sector and raised questions about whether AI-related stocks have become overly dependent on perfect execution.

Not Everyone on Wall Street Is Bearish

Despite Bank of America’s caution, not all analysts believe investors should be worried.

Citigroup analyst Atif Malik characterized the recent semiconductor pullback as a healthy development rather than the start of a larger downturn.

According to Malik, the decline may simply reflect profit-taking after a powerful rally.

He continues to favor several chip-related names and maintains buy ratings on:

Broadcom (AVGO)
Texas Instruments (TXN)
Applied Materials (AMAT)

From this perspective, short-term volatility could create opportunities rather than signal danger.

The disagreement highlights one of the biggest debates currently taking place on Wall Street.

Bears argue valuations, concentration, and investor enthusiasm have become excessive.

Bulls counter that earnings growth, AI spending, and economic resilience continue to justify elevated stock prices.

What Investors Should Watch Next

For investors, the key takeaway may not be that a bear market is inevitable.

Rather, it is that risk levels appear to be rising after an extended period of strong gains.

Several indicators deserve close attention in the coming months:

Market breadth and advance-decline data
Semiconductor sector performance
AI-related earnings guidance
Corporate profit growth
S&P 500 concentration levels

If these measures continue deteriorating, Bank of America’s warning could prove increasingly important.

If breadth improves and earnings remain strong, the current pullback may ultimately be remembered as a healthy reset within a continuing bull market.

For now, Wall Street remains divided.

But when one of the largest banks in the world says there are “too many red flags” appearing at once, investors may want to take a closer look at what’s happening beneath the surface of the market before assuming record highs guarantee smooth sailing ahead.