Bank of America warns: The current market is highly concentrated in AI stocks, closely resembling the eve of the peak of the 2000 internet bubble.

BlockBeats news, October 4th — Michael Hartnett, Chief Investment Strategist at BofA Securities, said in the latest issue of "Flow Show" that the current U.S. stock market structure is highly similar to the eve of the peak of the 2000 dot-com bubble. In the six months before the March 2000 peak, the technology sector rose more than 40%, the consumer staples sector fell 30%, and all other sectors except technology and telecommunications declined; the current market also shows a divergent pattern in which AI and large-cap technology stocks are the only ones rising while the rest are under pressure. The market is going long AI assets represented by the Nasdaq 100 Index and Mag7, while shorting lower-AI-related equal-weight S&P 500 and other indices, and "the 1999 analogy still holds."

Hartnett called AI "the biggest bubble since railways," using two 19th-century railway investment bubbles as references. Capital expenditure by hyperscale cloud computing companies is expected to reach 3.5% to 4% of U.S. GDP by 2027, still below the roughly 5% level during the peak of railway construction; at the same time, semiconductor prices are still rising, which differs from the railway era when freight rates continued to decline after overcapacity. However, he pointed out that the railway bubble back then was supported by falling Treasury yields, while the current high-rate environment does not have this condition.

On bonds, the U.S. 10-year Treasury yield has risen to 5.33%, a new high since 2002. Hartnett proposed a "buy the shame" strategy, advising investors to begin increasing holdings of bonds that have been neglected by the market. Historically, similarly extreme low returns usually correspond to generational allocation opportunities, but a decline in yields of 100 to 200 basis points may still require a credit event or economic recession as a catalyst.

Hartnett listed four risk warning lines: the global financial stocks ETF IXG falling below $125, the MOVE index rising above 125, the mid-cap ETF MDY falling below $666, and the small-cap ETF IJR falling below $135. He believes that if small-cap stocks weaken along with bank stocks, the market may see a chain reaction of deleveraging. The BofA Bull & Bear Indicator fell this week from 9.3 to 8.8, but remains in the "sell" range.