Three concurrent pressures are converging on the market, raising fresh concerns about the macroeconomic outlook.

Bank of America Chief Investment Strategist Michael Hartnett, in his latest Flow Show report, issued a stark warning: record diesel prices, 30-year Treasury yields hitting their highest level since 2007, and productivity concerns lurking beneath the AI boom are jointly constructing an autumn stagflation risk.

Hartnett has designated the Transportation ETF (IYT) as the most critical indicator to watch. He noted that if IYT breaks below its 200-day moving average support at 80 points, it would confirm that the summer's "best time has passed" macro de-risking has formally evolved into an autumn stagflation event. Meanwhile, he cautioned that "a complacent market paired with aggressive policy is a breeding ground for volatility," and explicitly stated that "it is not too late to hedge against the AI-bubble stock index."

Fund flow data simultaneously corroborates the subtle shift in market sentiment. Over the past three weeks, U.S. stocks have seen average weekly net inflows of merely $7 billion, a sharp contraction from July's peak of $52 billion. U.S. equities have also recorded their largest three-week net outflow since January 2026, totaling $14.2 billion.

Diesel emerges as the true pressure point

While headlines focus on crude oil returning to $100 per barrel, Hartnett points a larger warning finger at the diesel market. In his report, he clearly identified diesel as the "core pressure point of the real economy"—shipping, trucking, agriculture, construction, and mining are all heavily dependent on diesel.

Current diesel crack spreads have hit a record high of $102 per barrel, while retail diesel prices have also reached an all-time high of $6 per gallon. In contrast, crude oil prices remain well below their peaks during the Ukraine crisis. The divergence between the two highlights the abnormal pressure in the refining sector.

Hartnett warned that for industrial America, the surge in this largest input cost simply cannot be ignored. He set the IYT Transportation ETF as the core indicator to watch: the ETF is currently testing its 200-day moving average support at 80 points. A decisive break below this level would formally confirm the autumn stagflation scenario.

Elevated yields diminish bond diversification effect

The 30-year Treasury yield has risen to its highest level since June 2007, yet the market overall has not shown signs of panic.

Hartnett cited historical patterns, noting that "markets typically test policy resolve." After the U.S.-Japan joint intervention on July 31, 2026, the yen tested the 160 level before being pushed back below 154. Following the QE3 announcement in 2012, the 30-year Treasury yield jumped 16 basis points the next day. After QE4 was implemented in 2020, yields surged 51 basis points within days.

He also pointed out that the current "peak yield" trade is working, with long-duration rallies in XBI, KRE, REITs, and small caps having already preceded central bank rate hike actions. However, this rally has not been supported by synchronized fund inflows.

On the bond allocation front, Hartnett issued a deeper warning: during the 2000-2019 "secular stagnation" era, bonds and stocks had a negative correlation, and yields of 2% to 3% were almost a bonus. But now that returns on both asset classes are positively correlated again, allocators may require higher yields before large-scale rotation into bonds. The diversification protection benefit of bonds is rapidly fading.

AI bubble concerns: productivity data flash alarm

Hartnett raised his most direct skepticism yet regarding the AI boom in the report. He noted that AI-related investments have accumulated over $1.5 trillion in the past three years, yet evidence of economy-wide productivity gains remains scarce. Total Factor Productivity (TFP) is falling below its long-term trend line, a metric that has been highly correlated with consumer confidence over the past 50 years.

Another side effect of the AI boom is already visible at the valuation level: the free cash flow yield of the S&P 500 has been compressed to historic lows. Hartnett's data shows that the high free cash flow stock portfolio (VFLO) has risen 37% year-to-date, outperforming the broader market. In 2022, a typical stagflation year, this portfolio gained 9% while the S&P 500 ETF (SPY) fell 18% over the same period.

His conclusion carries a cautionary tone: "Sometimes, Main Street knows things that Wall Street doesn't."

Fund flows: Equities lose appeal, bonds and crypto gain favor

The latest weekly global fund flow data shows bonds attracted $17.5 billion, cash inflows reached $12.9 billion, equities saw $9.8 billion in inflows, cryptocurrencies attracted $1.3 billion, and gold saw $600 million in inflows.

Specifically, global bonds have recorded average weekly net inflows of $18 billion for four consecutive weeks. Investment-grade bonds have logged their 23rd consecutive week of net inflows, with weekly inflows of $5 billion. Chinese equities recorded their first net inflow in six weeks, at $1.1 billion. The materials sector has seen net inflows for the 10th consecutive week, totaling $1.9 billion. Cryptocurrencies have accumulated $6.8 billion in net inflows over the past six weeks, showing strong momentum.

Hartnett's proprietary sell-side indicator dipped slightly from 9.6 to 9.5 this week, primarily due to slowing equity inflows and outflows from the healthcare sector. Notably, since the indicator triggered a sell signal on May 2, the S&P 500 has risen 1.0% cumulatively, and the global ACWI index has gained 1.5%. The market has not yet seen a significant correction, but Hartnett believes this actually increases the pressure for subsequent risk release.