There are early signs of investors fleeing from tech stocks after 1999-like rally formed a “baby bubble,” according to Bank of America Corp.’s Michael Hartnett.

The technology sector saw $2 billion outflows, the largest in 10 weeks, in the five trading days through June 21, BofA wrote in a note, citing EPFR Global data. Investors exited with the Nasdaq 100 Index up 38% for the year and poised for its best half since the last six months of 1999, when it surged 61% after climbing in 26% in the first half.

The rally in US stocks stalled this week as investors digested Jerome Powell’s outlook on monetary policy. The Federal Reserve chair said more interest-rate increases may be needed this year, at a time equities have been climbing on hopes that rate hikes would end soon.

Hartnett said that although crowded positioning and strong investor sentiment isn’t an impediment to fresh upside, there’s a bigger chance of a downside than upside this summer. His team sees a maximum upside of 100-150 points versus downside of 300 points for the S&P 500 before Labor Day in September.

Hartnett correctly predicted the selloff in stocks in 2022, but has been caught on the wrong side this year with his bearish calls.

Also this week, Chris Harvey, head of equity strategy at Wells Fargo Securities, said the market now resembles the tech boom of 1999 and 2000, which didn’t end until tighter monetary policy had roiled stocks. JPMorgan Chase & Co.’s Marko Kolanovic said US equities are in for a tumultuous second half of the year as the lagging impacts of aggressive monetary tightening by the Fed catch up to the economy.

To be sure, Hartnett said investors are “stuck in growth stocks,” like technology, because banks and commercial real estate still “have bad recession vibes, especially in light of renewed central bank hikes.”

Weekly asset flows highlights from BofA’s note include:

• Among equity regions, US stocks had the first outflow in four weeks at $5.7 billion, Europe had $2.6 billion of redemptions and EM stock funds saw $300 million pulled out. Japan had $2.4 billion of inflows.
• By style, US growth had $3.7 billion of outflows versus $200 million of redemptions for US value
• For sectors, financials had the biggest inflows while tech and energy had largest outflows

--With assistance from Michael Msika.

(Adds context to Nasdaq 100 gains in 2nd paragraph)