① Bank of America has coined a new term for the current bull market, called “anything but bonds”; ② the bank believes that this bull market has led to a very heavy stock market; ③ Bank of America said that rising yields and narrowing interest spreads may sound a recession alarm and stimulate stock market sell-off.
Financial Services Association, April 27 (Editor Wong Kwan Chi) Bank of America (Bank of America) has coined a term for the current market situation, called the “anything but bonds” (anything but bonds) bull market.
The company notes that in the fourth quarter of 2023, stocks and cryptocurrencies led the way. The first three months of 2024 are commodities and cryptocurrencies. So far, the US dollar has been shining brightly in the second quarter.
Bank of America warned that although this is profitable for some traders, it is a “by-product” of huge government spending, and positions may eventually be closed if several key conditions are met.
The key part is the big tech companies that have dominated stock market performance for a long time, mainly because they are related to artificial intelligence (AI). As shown in the chart below, the top 10 stocks accounted for 34% of the S&P 500 market capitalization, a record high.
However, Bank of America doesn't think this bullish bull market will last forever. The bank outlined a situation that could disrupt gains and ultimately weaken the leading position of large growth stocks: the actual yield on 10-year treasury bonds climbed to the 2.5% - 3% range, and/or rising yields combined with rising credit spreads raised concerns about a recession.
Currently, the actual yield on 10-year treasury bonds is 2.28%, which means that it still has a long way to go before finally triggering a sell-off of large stocks with more weight in major indices. According to the chart below, it hasn't surpassed 2.5% since October 2023, and even if it did, it was only short lived.
Furthermore, another consideration is that big tech stocks will no longer continue to rise. With Tesla and Apple getting off to a difficult start in 2024, while giants such as Nvidia and Microsoft are still “bullish,” the stocks of the “Big Seven Tech” diverged. Bank of America pointed out that these differences reduce the risk of concentration to a certain extent and may curb the eventual sell-off.
Contrary to Bank of America's opinion, Goldman Sachs believes that artificial intelligence is far from being used up as a “stock fuel.” In contrast, the stock market is in the first phase of a boom led by artificial intelligence, which will continue to expand, boosting more and more industries, the bank said in its latest report released on Tuesday.
“If Nvidia represents the first phase of AI trading, the second phase will be for other companies to help build infrastructure related to artificial intelligence,” the bank wrote. “The third phase is for companies incorporating artificial intelligence into their products to increase revenue, while the fourth phase is productivity increases associated with artificial intelligence, which should be possible in many businesses.”