Bank of America: "DO NOT Buy Stocks Right Now!" (LAST WARNING)

One of the biggest banks in the world just told its own customers to stop buying stocks. Bank of America is warning that the unthinkable could be about to hit the market. A top economist now puts the odds of a recession at north of 40%. And Warren Buffett's favorite warning signal just flashed its brightest red in over 50 years. So, is the crash that everyone's been waiting for finally coming? Here is the simplest way to understand it. In one recent week, the stock market went down five days, five red days. People have gotten nervous and started asking the question that gets asked every cycle. Is this the start of something bad? And right on Q, the headline showed up. Economists saying the US economy might be on the edge of a recession. Big banks telling their clients to be careful. The fear machine has been turned on. The switch has been flipped. Now, a few red days by itself means absolutely nothing. The market goes up and down every week. That's just normal. The reason this time is getting so much attention is that the red days are showing up at the same moment that a bunch of long-term warning signals are lighting up. So, let's get straight to the warning from Bank of America, one of the world's most dominant financial forces. Bank of America has a team of people who study the market for a living. Over many years, they've built something they call their list of bare market signposts. In plain English, a bare market is just a big lasting drop. A drop of 20% or more from the market highs. So, a signpost is a warning sign that history says tends to show up before a big drop. Think of it like the dashboard in your car. A bunch of warning lights, engine, oil, gas. One light comes on, no big deal. You can probably keep driving for a while. But when light after light after light starts to glow, you probably need to pull over. Something is probably seriously wrong. Bank of America has 10 of these warning lights. And here's the headline number that everyone's talking about. Seven of those 10 are now flashing red, guys. That's 70%. Five turned red by April, then two more flipped in May. So, they're not just on, they've been on faster, one after another. So, what do they measure? Well, in normal language, one watches how confident regular people feel about the economy. Another one watches how much investors expect stocks to keep going up because when everybody's sure that stocks only go up, that's usually exactly when they don't. Others watch for stress in the credit system are people and companies struggling to borrow and pay back money and whether banks are getting nervous about lending. You'll also see that when banks will sit there and increase their reserves for loan losses. But there's one red light I really want you to notice because it matters most for value investors like you and I. Bank of America found that the most expensive stocks, the ones with the highest prices compared to what they actually earn, have been beating the cheaper stocks by a massive margin. In their words, it is a sign of excessive speculation. Speculation is just gambling. Buying a stock because the price is going up and you hope that it keeps going up. When the most expensive, most hype stocks are the ones flying the highest, it means that people have stopped asking what is this business actually worth. They're just chasing. And that historically is not a good sign. And it gets a little scarier. Bank of America measured how expensive the whole market is using 20 different yard sticks. 20 ways to check the price. And the market is expensive on 17 of those 20. on eight of them. Stocks are even more expensive than they were during the dotcom bubble in the year 2000. And if you were around for that one, you know how it ended. We had 12 years of the S&P being flat. We had 16 years of the NASDAQ being flat, which also included an 80% drop in 3 years. Now, they also pointed to the technology sector, Apple, Nvidia, Broadcom. Inside tech, the gap between the best stocks and the worst stocks is the widest it's been since February of 2000. Guys, the peak of the 2000.com bubble was March of 2000. This is the widest margin in over 26 years. When some stocks rocket while others sink that hard at the same time, Bank of America calls it a sign of rising instability. The ground is getting shaky. Now, I promise you balance. So, here it is. Three of the 10 warning signs are still green. Not every signal has flipped. And the bank was honest that the big tech companies today are actually healthier than the dot companies were back in 2000. These are real businesses making real money, not fake websites with no profits. In fairness though, comparing the top 10 tech stocks to the entire tech industry in 2000 is also unfair. The top 10 tech stocks of 2000 were still generating profits. Were they selling for reasonable valuations? Absolutely not. And in many cases worse than today. But here's the catch, and this is the part I really want you to hear. Even on the lights that are still green, the bank says the numbers are getting worse. The cash flow that these tech giants generate has flatlined or gone down. They're spending almost every dollar they make building out artificial intelligence. By year end, the biggest companies are expected to spend over 100% of their cash flow on it, and they are buying back fewer of their own shares than before, which I actually like because I don't want these tech companies buying back shares of their expensive stock. So, those green lights are not bright green. They're turning yellow, inching towards red. So, where does Bank of America land? Well, they actually lowered their target for this S&P 500, the index that tracks the 500 biggest American companies. They lower their target down to 7100 below where the market is currently trading. In other words, they think the overall market may have less room to run. But, and remember this, they did not say to sell everything and run. Their exact message was that they see opportunity in individual S&P 500 stocks, but not in the overall index as one big basket. Now, one thing reminder, guys, the bank did say this, the headline of the article, to take profits. You know how I feel about that kind of behavior. The idea of jumping in and out of individual stocks based on when the market is. If you have a great company and you bought at a good price, write it out. If you're dollar cost averaging a lowc cost ETFs, write it out. There's so many situations that depend on your financial situation. Now, the average of the companies in the S&P 500 might struggle, but good individual companies at the right price can still do very well. Hold that thought because that's really important going forward, and I'm going to circle back to that later in the video. Now, I have to pivot to another issue. There's a second separate worry stacking on top. The one that hits everybody's real lives, not just their investment accounts. The recession worry. So, what's a recession? Well guys, the technical term is two consecutive quarters of negative GDP growth. Is that really used anymore? No. Basically, anytime there's a negative GDP, that is considered a recession. So, when the whole economy and GDP shrinks, there are fewer jobs, companies make less money, people spend less, the economy catches a cold. It normally happens about once every five or six years, and it's a very normal part of the cycle, but we've been avoiding one for a very long time. Now you might remember that we had a recession in 2020 because of a government shutdown. I don't really consider that a recession because that was forced by the government. Now one of the most respected voices on this is economist Mark Xandandy and Moody's and people listen when he talks right now he puts the chance of a recession in the next year at 40%. The normal average chance in any given year is only about 15%. In his words it gives you a sense of how close I think things are to the edge. So why is he worried? Three reasons, and you can feel all of them in your own wallet. Number one, people aren't actually getting richer. There's a number called real disposable income. The money you have left after taxes and after rising prices. It hasn't grown at all in the past year. Zero. So even if your paycheck got bigger, prices ate that whole raise. You're running in place. Number two, oil and gas. There's a conflict involving Iran and Iran has threatened to block the straight of Hormuz. Picture a giant highway for oil ships where a huge chunk of the world's oil floats through one narrow passage. 20% of the world's oil. If you block it, what happens to supply? It shrinks. When supply goes down, what happens to prices? They go up. Oil already jumped about 7% and GL gas climbed to around 432 per gallon. Now, Xandy warns that if gas hits $5, people could stop spending enough to tip the country in a recession. and America's emergency oil stash is at its lowest level in two years. So, there's far less cushion than usual. He said a peace deal needs to come within days or we've got a problem. Number three, the Federal Reserve is stuck. The Fed controls interest rates. Normally, when growth is weak, they cut rates to warm things up. Why? Well, think about it this way. When rates are low, are you more likely or less likely to buy stuff? You're going to buy stuff. You're going to buy cars. You're going to buy expensive things. You're going to buy house. you're going to expand your house, things like that. But right now, prices are rising at over 4%. So, they can't comfortably cut without making prices rise even faster because if they cut rates, people buy more stuff. There's more demand for things. We need to start paying more. It's a whole vicious cycle. They feel boxed in. And Xandy even warned they might have to raise rates further just to get prices under control. And I want to remind everybody the CME group for the end of the year has only a 0.5% chance that rates get cut by the end of the year. There is a about a 30% chance that rates stay the same and about a 70% chance that rates go higher by the end of the year. Now I want to be fair because not everyone agrees. The April's jobs report actually came in better than expected. So this is a real argument with real people on both sides. Nobody has a crystal ball. 40% odds of recession also means a 60% chance that there won't be one. Keep that in the in your back pocket and remember that. Now, the third and final warning, and this one's special because it comes from the playbook of the greatest investor who ever lived, Warren Buffett. There is a measuring tool that Buffett himself once called probably the best single measure of where valuations stand at any given moment. And right now, it is flashing the brightest red warning in its entire history. And guys, if you watch our Everything Money Plus channel, every week we talk about this exact metric. Here's how it works, and it's incredibly simple. You take the total value of the entire US stock market, every public company added together, and you compare it to the size of the American economy in that year, which is GDP. So, it makes logical sense if the US economy grows and doubles in size, it would make sense that the companies within it should be about double. When the indicator is about stock market is equal to the US economy, they're about the same size. It's roughly a fair valuation metric. Right now, it is more than two times the size of the entire economy. And the kicker, it may be the highest it's ever been, but it's definitely the highest since 1970. Higher than the dot bubble. Significantly higher. Higher than right before 2008, the all-time record. And it jumped 13% in just a couple of months. that puts it in deep into the significantly overvalued zone. A polite way of saying future returns could be weak or even negative. So guys, look at the returns at the top. When you go from undervalued to overvalued, it is no coincidence that as you get to more overvalued, the returns fall. And I want to remind everybody, these returns do not include dividends. And my valuation is based only on the S&P 500, not the entire stock market. But guys, it makes perfect sense. The more you pay for something, the less your future returns are going to be. The way in which we get to those future returns, we don't know. Is it going to be a crash? Is it going to be sideways for a while? These are the unknowns. Now, guys, I want to remind everybody, do not take our titles literally. From the time we posted this video to the time you clicked on it, the title's probably changed a few times. We're here to get you in on a title and then teach you a broader lesson. Now, back to Buffett. Here is the fascinating twist. Even with his own favorite indicator screaming, Buffett has not entirely run for the hills despite having a $400 billion cash pile. Birkshshire Hathway put 10 billion dollars into Alphabet, the parent of Google, to fund its AI buildout recently through a private placement. So think about what that's telling you. The most famous value investor alive is looking at record high stock market, being cautious overall, but still buying specific wonderful companies he believes are fairly priced. He's not betting on the whole market. He's betting on individual businesses. Does that sound familiar? It's the exact same message that Bank of America gave you. Careful on the index opportunity in the right individual stocks. And guys, we saw the same thing back in 2000. Now, it wasn't S&P 500 companies necessarily. It was smaller cap, midcap businesses. Everybody was investing so much in large cap that when they fell, the value in small and midcap was so great that those companies actually went up even during a stock market crash. All right, so we just went through a lot of scary stuff. Seven of 10 warning lights read a 40% chance of recession, the most expensive market possibly in history. If you only watch the news, you'd think the smart move is to sell everything and hide your money under the mattress. So, let me be the calm voice for a minute because I want to tell you something. the headlines never will. Recessions and bare markets are normal. They're not the end of the world and they're not even rare. They're a regular, healthy part of how the market works. We have been through dozens. The Great Depression, the 1970s, the dot crash, 2008, COVID, and after every single one, the market eventually went on to make brand new all-time highs. The economy went on to get even better. It has never failed to recover. Not once. If you believe it won't, then I would ask you, do you believe in the US economy anymore? So, here's the mindset that changes everything. When the market drops, the businesses that you want to own go on sale. If your favorite store had 50% off of everything, would you run out screaming, say, "I'm not going to buy anything." No. You'd go grab a cart, you'd call your spouse, and say, "Get to the store. We're buying everything." But for some reason, when stocks go on sale, people panic. They sell the very thing they should be buying. And the biggest fortunes aren't made in the good times. They're made in the scary times by the calm people who kept buying great companies while everyone else ran. A bare market isn't a disaster for a long-term investor. It is an opportunity. So, no, I'm not scared of a recession or a bare market. In fact, after a market this expensive for this long, I would love to see that to create exactly the prices that a value investor dreams of. The key is to be ready and calm instead of surprised and scared. Guys, I always bring this up. I show a history of the S&P going back to 1950. I say to everybody, if you could only pick six times to have invested, where would you pick? And of course, you go to the chart and whenever there's a big dip, you circle that. But guys, during that big dip is when fear was the greatest. And when you're in the moment, it is very difficult to get through that. I understand that. But that's investing. In hindsight, it's very easy. We're here to change that. We're here to make it so that while it's happening, it's a lot easier. So, let me get very specific. If a recession hits and the market falls hard, here's the exact plan I'd follow. And none of it's complicated. Step one, I'm not going to panic sell great companies. The biggest mistake regular investors make is selling at the bottom out of fear. Locking in the loss, then watching from the sidelines while the market recovers without them. If you own great businesses or lowcost ETFs, a falling price doesn't mean the business or the market got worse. It means it got cheaper. Guys, I love telling the story of back in 2006 when I met with a couple who were I was friends with from college. They sat down and said, "Hey, we're getting ready for starting to save." And I asked them a very specific question. If the market fell in half, what would you do? The wife looked at her husband, looked at me, and said, "We'd buy more." Right? And I could tell she was a little hesitant like,"Isn't that the right thing to do?" I said, "You get it." Fast forward two years. And I get an email towards the end of 2008. Paul and frantic email, I'm so scared. What's going to happen? Stocks are going to zero. And I said, remember we discussed this? And her comment was, yeah, but what didn't involve that the US economy was falling apart? The financial like, well, doesn't that have to happen usually in order to have a big fall like that? There has to be some story attached. Well, they sold everything. And for a few months, they looked right. But when do they buy back in? At a higher price than when they originally sold because they wanted to wait until they felt comfortable. Step two, keep buying steadily. Invest on a regular schedule, maybe every paycheck, no matter what the market's doing. Buy it in lowcost ETFs. And there's a name for it. It's called dollar cost averaging. Guys, I do it every month. I still do it in this market. You buy at regular times instead of trying to time the bottom, which nobody can do. You keep buying on the way down and the way back up and you will naturally scoop up more shares when prices are low. The scary times do the work for you. Step three, keep some cash ready. I always like some cash on the sideline in treasuries, not because I'm scared, but because that allows you to capitalize on opportunity. When a great company that you've been watching drives to a price that you love, you want to be the person with the money ready to buy, not the one wishing they had some. Step four, build your shopping list before the storm. Now, this is for individual stocks. Now, remember, I always tell people, make sure you dollar cost average in a lowcost ETFs to hit your goals. If you want to buy individual stocks, get a list ready and put it with money that you don't need in order to retire. Right now, while things are calm, make your watch list of wonderful businesses that you want to own. Write down the price you'd be thrilled to pay for each one. That's exactly what our Everything Money community members do with our stock analyzer tool and then our watch list. Then when fear takes over and prices fall, you're not deciding in the chaos. You already did the homework. You just check your list. You double check your numbers and you act. Now, I just told you to build your shopping list before the storm. So, let me show you exactly how we do that because this is literally what the Everything Money community was built for. In our community, you don't guess what a business is worth. You pull up stock analyzer. You punch in your assumptions, revenue growth, profit margins, what you would pay for those earnings in the future. And in five minutes, it tells you the price that makes that company a deal for you. Not for the talking heads on TV, not for your friends, for you based on your own numbers. Then you put in your watch list with your buy price next to it. And here's why that matters for everything we just talked about. When seven of 10 warning lights are flashing red and the market finally goes on sale, you won't be the person frozen, scrolling through headlines, trying to do math while everyone else is panickling. You'll just open up your list. The homework is already done. The price hits your number. You act. That's it. And you won't be doing it alone. You'll be doing alongside thousands of investors in our community who think the same way. Plus, our team going through real companies together every single week within the community. So, the bare market's coming. This is how you walk into it prepared instead of scared. The link is in the description. So, come do the homework with us right now while things are still calm. Because the worst time to build your list is after the sale starts. Now, the fifth step, focus on quality, not on lottery tickets. In scary times, you don't want the wobbly, speculative, hyped up stuff. That's the exact stuff that Bank of America said is flashing red. So you want strong profitable companies with real earnings, low debt, and even if their revenue and profits are down during a recession, you know that when the recession ends, those profits will skyrocket again because as Munger says, when the recession does end, the profit and revenue springs back out like an absolute spring. It just goes nuts, and you want to be ready when that happens. So here's what ties this whole video together. None of that plan works if you're making it up emotionally in the moment. It only works if you decide your principles ahead of time and follow them no matter how loud the news gets. That is principal driven investing. You don't react to headlines. You don't guess. You don't let fear or greed grab the wheel. You follow a clear, repeatable process for what a business is worth and what you'll pay. And you let that process guide your decision-making. So guys, there are five guard rails that I use. These are the five tenants that I call principal driven investing. First off, we are investors, not speculators. Second, every investment is the present value of all future cash flows. Third, if we don't understand it, we don't invest in it. Fourth, in the short run, stocks are a voting machine. In the long run, they're a weighing machine. And fifth, and probably the most important one, and this is the one I really want you to remember, a great story becomes a bad investment if you pay the wrong price. Now, I don't know how that hit you, but when I came up with these, it was kind of in my head and it hit me immediately. I said, "I need this." And I have it posted in my office, in the studio, at home, where I can use it as a guardrail for myself. The good news is I have it absolutely for free for you right now. Click the link below and download our PDF absolutely free. Keep it near you. You'll you'll need it during good times and bad times to make sure you're making the right decision. Now guys, it all really comes down to one idea at the core of everything that we do on this channel. Price is what you pay, value is what you get. We want to buy when price is below value. The news this week has been all about price. Up, down, expensive, cheap, whatever it is. But the real question is never just price. It's what is this business actually worth? And am I paying less than that? Anchor every decision to value instead of getting pulled around by price. And then scary headlines lose their power over you. A red day stops being a threat and becomes an opportunity. So when you hear seven of 10 lights are red or the Buffett indicator is an all-time high, you don't panic. You don't ignore it. You stay calm. You manage your expectations. You keep your standards high and you wait patiently for wonderful businesses to go on sale. And when they do, you're ready. So, if we stay calm, stick to our principles, keep our shopping list ready, and buy wonderful businesses at fair prices. We don't have to fear a downturn. We encourage it and we welcome it. Now, if you want to understand the detailed, specific market setup that has historically come right before every major crash and how to recognize it, click right here to watch that video. Thank you for your time.