BofA strategist warns AI that the market structure dominated by large-cap technology stocks is similar to 2000 on the eve of the peak of the dot-com bubble

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【BofA warns: The current market rally is highly concentrated in AI sectors, closely resembling the eve of the peak of the internet bubble in 2000】

Michael Hartnett, chief investment strategist at BofA Securities, said in the latest edition of The Flow Show that the structure of the current U.S. stock market closely resembles the period just before the peak of the dot-com bubble in 2000. In 2000,March months before the peak, the technology sector rose more than 6, while the consumer staples sector fell 40%. All sectors other than technology and telecommunications declined; the current market is likewise showing a divergence in which 30%and large-cap technology stocks are rising alone while other stocks remain under pressure. The market is going long on AI assets represented by the Nasdaq 100 index and Mag7, while shorting the S&P AI equal-weight index and other assets with low correlation to AI. The analogy with 500 remains valid. Hartnett called 1999 the biggest bubble since the railways, using the two railway investment bubbles of the AI century as a reference. Capital expenditure by hyperscale cloud-computing companies is expected to reach 19 in the United States in 2027, equivalent to GDP of U.S. 3.5%to 4%, still below the approximately 5%level during the peak of railway construction. At the same time, semiconductor prices are still rising, unlike the sustained decline in freight rates after excess capacity emerged during the railway era. However, he noted that the railway bubble was supported by falling Treasury yields, a condition absent in the current high-interest-rate environment. In the bond market, the U.S. 10-year Treasury yield has risen to 5.33%, its highest level since 2002. Hartnett proposed a buy-the-ugly strategy, recommending that investors begin increasing their holdings of bonds shunned by the market. Historically, similarly extreme low returns have often corresponded to generational allocation opportunities, but a decline in yields of 100 to 200 basis points may still require a credit event or recession as a catalyst. Hartnett identified four risk warning lines: global financial stocks falling ETF IXG below 125 USD、MOVE index breaking above 125, mid-cap stocks falling ETF MDY below 666 USD, and small-cap stocks ETF IJR falling below 135 USD. He believes that if small-cap stocks weaken in tandem with bank stocks, the market could experience a chain reaction of deleveraging. BofA's bull-and-bear indicator fell this week from 9.3 to 8.8, but remains in the sell zone.