BofA Warns of Dotcom Bubble Vibes in S&P 500 Valuations

Bank of America market strategist Michael Hartnett warns that the S&P 500's price-to-book value ratio has climbed to 5.3, near the level seen before the dotcom bubble burst in 2000. However, Hartnett notes that factors such as bond allocations, AI boom, and currency debasement could suggest that this market cycle is different. He also suggests that a weaker dollar could lead to a boom and bubble in the US in 2025/26. The firm's Bull & Bear Indicator sits in neutral territory at 6.1.

A new survey by Bank of America (BofA) reveals that over 90% of fund managers believe the US stock market is overvalued, marking the highest rate since 2001 [1]. This sentiment is echoed by a Bloomberg report, which shows that 91% of polled fund managers share this opinion. The survey also indicates a significant shift in investor allocation, with foreign markets seeing the highest weight since February, signaling a potential change in sentiment towards US markets.

BofA strategist Michael Hartnett warns that the recent stock market rally may be at risk of turning into a bubble. He points out that cash levels as a percentage of total assets are at 3.9%, a level historically associated with incoming sell-offs [1]. Additionally, a net 49% of respondents believe that emerging market (EM) stocks are undervalued, the most since February of 2024. Among the most popular trades, respondents favored long positions in the Magnificent 7 stocks, short positions in the dollar, and long positions in gold [1].

Separately, Tom Essaye of Sevens Report Research has raised concerns about the AI-driven market rally. He suggests that the performance of semiconductor stocks, which are crucial for AI technology, lags behind the broader market, indicating potential risks. The PHLX Semiconductor Index (SOX) has not kept pace with the S&P 500, raising concerns about the sustainability of the current rally [2]. Essaye also highlights the weakening US economic outlook, with poor job gains and increasing jobless claims, as potential indicators of a late-cycle bubble [2].

Hartnett further notes that the S&P 500's price-to-book value ratio has climbed to 5.3, near the level seen before the dotcom bubble burst in 2000. However, he suggests that factors such as bond allocations, the AI boom, and currency debasement could differentiate this market cycle from the past [1]. Additionally, a weaker dollar could potentially lead to a boom and bubble in the US markets in 2025/26, according to Hartnett [1]. The firm's Bull & Bear Indicator sits in neutral territory at 6.1, indicating a balanced market outlook [1].

In conclusion, the current market sentiment indicates potential risks and overvaluation in the US stock market. Investors should remain vigilant and consider the factors that could influence market performance in the coming quarters.

References:
[1] https://dailyhodl.com/2025/08/11/91-of-investors-say-us-stock-market-is-overvalued-according-to-new-bank-of-america-survey-report/
[2] https://www.aol.com/bull-market-equities-serious-problem-091501318.html