The market is starting to look like a bubble, according to Bank of America's top strategist.
In a new interview with Bloomberg, Michael Hartnett, the bank's chief investment strategist, pointed to the soaring prices of cryptocurrencies, the Magnificent Seven tech stocks, and AI stocks.
“So there's a tremendous sense of euphoria. This euphoria is because of the Fed. The Fed wants to cut rates no matter what, and the markets are moving from gold to crypto to stocks to even corporate bonds. They are ahead of the rate cut.
But a bubble is when there's too much money chasing too few goods, and everyone wants chips, and there's a lot of money chasing it, well, this has characteristics. I think there is [of a bubble] In terms of price, speed of movement, reputation, and breadth. Bubbles are narrow and bull markets are wide, but this one is not that wide. ”
The Magnificent Seven tech stocks include Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, and Tesla.
Hartnett noted that the bubble “doesn't necessarily have to burst right now,” but said U.S. macroeconomic indicators, particularly the labor market, are ominous.
“There is no question that there are cracks in the U.S. labor market. At the same time, there is no one in America who thinks inflation is going to be 2%, because it isn't. It's going to be somewhere between 3% and 4%. It's stopped.
So a backdrop where inflation is a little higher than expected and growth is a little weaker than expected is usually not good for risk assets, but risk assets are saying, “We don't care, we have AI and all that.'' 'But it's a certain kind of thing.' is very representative of a certain kind of bubble mentality. ”
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