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BofA Says AI-Led Tech Surge Has Further Upside, Urges Barbell Hedge

BofA urges a barbell hedge, citing metrics still below past bubble extremes.

Overview

  • Bank of America strategists led by Michael Hartnett say the Magnificent Seven remain the best bubble proxy yet still show room to run.
  • Since March 10, 2023 the group has risen about 225%, trades near a P/E of 39, and sits roughly 20% above its 200-day average.
  • By BofA’s historical yardsticks for nine past equity bubbles, peak phases averaged a 244% climb, a P/E near 58, and a 29% gap over the 200-day average.
  • The rally has rebounded roughly 60% from an early-April low, with this week’s Federal Reserve rate cut cited as a supportive catalyst.
  • To hedge bubble risk, BofA recommends going long cheap or distressed value plays such as Brazil, UK and global energy stocks, and shorting the corporate debt of richly priced tech firms.