Bank of America warns of top-heavy stock market in ongoing “anything but bonds” bull run
Bank of America is sounding the alarm on the current state of the stock market, warning that the ongoing “anything but bonds” bull market has led to a very top-heavy market. The firm is closely monitoring real 10-year yields and credit spreads for signals of when the AI-led rally could come to an end.
According to BofA, the surge in stocks and other asset classes has been fueled by immense government spending, with different sectors taking turns leading the way. However, the firm cautions that this trend could unravel if certain conditions are met.
One key factor to watch, according to BofA, is the performance of mega-cap tech companies that have been driving stock market gains. The top 10 companies in the S&P 500 now account for a record 34% of the market cap, highlighting the concentration of wealth in a few key players.
BofA outlines a scenario in which real 10-year yields climb into the 2.5%-to-3% range, or higher yields combine with tighter credit spreads to signal a potential recession. While the current 10-year real yield is at 2.28%, it still has room to rise before triggering a sell-off in mega-cap stocks.
The firm also notes that there has been a divergence in performance among AI-focused tech giants, with some struggling while others continue to soar. This could reduce the risk of a market downturn, at least in the short term.
Overall, Bank of America’s warning serves as a reminder that the current bull market may not last forever, and investors should be vigilant in monitoring key indicators for signs of a potential reversal.
