Investing.com -- Bank of America told clients in a note Monday that its market signals have shifted from red to yellow, easing back from bear-market warning territory even as it flagged lingering risks around valuation and credit.

By the end of May, 70% of the bank's bear-market signposts had triggered, pushing it into red-flag territory on a historical basis.

"Since then, risks have moderated: the share of signposts triggered fell to 60% on improving credit conditions," strategist Savita Subramanian wrote, adding that frothy price action within tech had normalized. Still, at 60% triggered, median next-12-month returns have historically been an underwhelming 3%.

On valuation, BofA said the S&P 500's forward multiple has compressed to 20 times from 22 times at the start of the year "for a good reason," as earnings outpaced price. But even that is not enough to yield a bullish long-term outlook, with the bank's model implying 3% annualized losses over the next decade.

BofA cautioned that credit cycles "start slow & benign and end fast & painfully," noting that across major stress episodes since the 1990s, the first half of the move in spreads took six times longer than the second.

On positioning, the bank favors large-cap value as a ballast, highlighting oil and gas, distributors, metals and mining, banks, and insurance. It warned investors to avoid value traps such as media and IT services, where price deterioration is outpacing estimate cuts.