Wall Street’s most closely watched sentiment gauges are flashing red, but investors are struggling to act on them as reflationary forces keep risk appetite alive, according to Michael Hartnett, Bank of America’s chief investment strategist. Hartnett pointed to a cluster of extreme positioning indicators in a note to clients Friday. BofA’s Bull & Bear Indicator has climbed to 8.9, well into “sell” territory, while the firm’s Fund Manager Survey shows cash levels at 3.3%, another historical warning sign. Investors poured record amounts into investment-grade credit, equity exchange-traded funds, gold and cryptocurrencies in 2025, according to the bank. They “all scream sell,” Hartnett wrote, adding that the balance of risks for major equity indexes now points to “more downside than upside.” The optimism is also embedded in earnings expectations. Consensus forecasts call for S & P 500 profits to grow about 14% this year, marking a pace that assumes a strong economic expansion even as valuations remain elevated and positioning is stretched. Hartnett argued that the macro backdrop is complicating the usual contrarian playbook. Unlike prior late-cycle episodes, the Federal Reserve is cutting interest rates rather than hiking them and has resumed quantitative easing through Treasury bill purchases. “Everyone expects boom, but Fed cutting not hiking, Fed restarting QE buying T-bills, and Trump starting QE buying MBS,” Hartnett said. At the same time, President Donald Trump’s policy agenda is injecting fresh stimulus into housing and credit markets, including renewed buying of mortgage-backed securities, a move Hartnett likened to a second channel of quantitative easing. The result is a market environment that looks overheated by sentiment measures, but continues to be supported by easy financial conditions and reflationary policy signals, Hartnett said.