The phrase “anything but bonds” has been coined by Bank of America to describe the current bull market that is leading to a very top-heavy stock market. According to BofA, this trend is a result of immense government spending and is driven by a cohort of mega-cap tech companies that have long dominated stock-market performance, mainly due to their affiliation with AI technology.
In the fourth quarter of 2023, stocks and crypto led the market, while the first three months of 2024 saw commodities and crypto continuing to thrive. Currently, the US dollar is taking center stage. However, BofA warns that this trend may not last forever and could potentially unravel under certain circumstances.
The key conditions that could derail this bull run, according to BofA, include real 10-year yields climbing into the 2.5%-to-3% range and/or higher yields combining with tighter credit spreads to spark recession fears. Currently, the real 10-year yield stands at 2.28%, indicating that there is still room for growth before a sell-off may occur.
Moreover, there has been a divergence in the performance of AI-focused mega-cap tech stocks, with some facing challenges while others continue to soar. This variation has reduced concentration risk and may dampen any potential sell-off in the near future.
If you are following BofA's perspective, keep a close eye on the 10-year real yield for signs of an impending downturn. As the market remains dynamic and ever-changing, it is crucial to stay informed and vigilant in order to navigate the fluctuations and uncertainties in the financial landscape.