By Levin Stamm

(Bloomberg) -- Investor bullishness has become so extreme that it's time to start reducing exposure to risky assets, according to Bank of America Corp. strategists.

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The bank's bull-and-bear reading climbed to its highest level since 2021, rising to 9.7 from 9.4, the team led by Michael Hartnett wrote in a note. They pointed to broadening equity markets, strong inflows into high-yield debt and tighter credit spreads as reasons behind investor optimism.

The strategists favor defensive assets, saying they should help protect portfolios against negative surprises in the economy, monetary policy and artificial intelligence.

"We remain in summer Retreat/Rotate not Reload camp," Hartnett said. "We recommend investors retreat from risk assets and/or rotate into some defensives, duration and US dollar."

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The warning comes as investors rushed back into semiconductor stocks following upbeat results, easing concerns that the AI rally was running out of steam. Sentiment has been further buoyed by strong earnings in both the US and Europe.

Equities hit record highs on both sides of the Atlantic this week. Investors are now awaiting Friday's US jobs report for fresh clues on the Federal Reserve's next move. Stronger-than-expected data could trigger a pullback in risk assets by reinforcing expectations that rates will stay higher for longer.

US equities attracted net $9.6 billion in the week through August 5, according to BofA citing EPFR Global data, putting the region on track for a record year of inflows.

--With assistance from Michael Msika.

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