BofA warning: Take profits in the AI-driven New York stock market

Bank of America (BofA) 8warned in a report (local time) that warning signs similar to those seen just before past bear markets had emerged in the New York stock market. The report recommended that it was now time to sell stocks and lock in profits. The report was prepared by an equity strategy team led by Savita Subramanian.

The indicators BofA focused on included consumer confidence, growth expectations, M&A activity, stress in credit markets and lending conditions. The report assessed that, taken together, these indicators showed a trend similar to those seen around major past peaks. It noted that signs of strain had emerged in each individual indicator.

The report said the S&P 500index was overvalued based on several earnings metrics relative to its stock price. Some valuation indicators were assessed as more concerning than during the dot-com bubble in 2000. It raised concerns about overvaluation across the index.

The report stated that the stocks driving the index’s rise are limited in number. It analyzed that the gap between individual stocks within the market had widened as large-cap AI and semiconductor-related stocks led the upward trend. It noted that the difference in returns between the top-performing and bottom-performing stocks among technology shares was at its widest level since just before the dot-com bubble.

The report pointed out that the competition for AI investment could lead to a financial burden for big tech companies. It mentioned the potential for investment costs and capital expenditures to increase at major technology companies including Microsoft, Amazon, Google, and Meta. This was included as a market risk factor.

The report concluded by recommending that investors take profits. It stated that the original report presented specific indicators and comparative examples. BofA recommended adjusting positions based on the current signals.