Source: Golden Ten Data
Bank of America strategists believe that since the market position is that the US economy “will not land,” this will benefit risky assets.
Bank of America strategists said that until rising real interest rates raise concerns about a recession, the US stock market will continue to rely on a few large-cap stocks to guide the direction.
The research team led by Michael Hartnett pointed out that the market capitalization of the top ten US stocks accounted for a record 34% of the total market value of the S&P 500 Index (SPX), while the market capitalization of the top ten global stocks accounted for a record 23% of the total market value of the MSCI Global Index.
These strategists wrote in a report that this concentration will remain the same until the actual 10-year Treasury yield rises to around 3%, or until rising yields and widening credit spreads together pose a threat of recession. The rise in inflation-adjusted bond yields is seen as a tight financial situation and a common way for stock market bubbles to burst.
Despite a turbulent April, the “Big Seven”, including Nvidia (NVDA), Apple (AAPL), and Amazon (AMZN), have maintained a huge performance gap with other companies since the beginning of this year.
Strong results announced by Microsoft (MSFT) and Alphabet (GOOGL) on Thursday are expected to continue the rise in technology stocks. Alphabet's market capitalization is expected to exceed $2 trillion, a historical threshold that is difficult to achieve.
After experiencing strong performance in the first quarter, US stocks fluctuated again in April because traders reduced their bets on the Federal Reserve's interest rate cuts this year, while the Middle East conflict boosted commodity prices and heightened investors' concerns about inflation. However, although US 10-year Treasury yields climbed to a nearly 6-month high of more than 4.70%, the stock market showed resilience as data showed a stronger economy.
Bank of America strategists wrote that the current market position is that the US economy “will not land,” that is, the US economy will remain strong, and interest rates will remain high for a longer period of time. They added that this would benefit risky assets, particularly cyclical assets.
However, strategists also pointed out that the risk of accelerated inflation will be bad for risky assets, cause market fluctuations, and benefit cash, gold, and commodities.