Bank of America Securities is urging investors to take profits in parts of the US stock market after a strong rally left major indexes expensive, crowded, and dependent on a small group of large-cap winners. Savita Subramanian, Bank of America’s head of US equity and quantitative strategy, said risks are building beneath the surface of the market. The bank’s latest framework shows that seven of its ten bear-market indicators have now been triggered, placing the reading at roughly 70%. The warning comes as the S&P 500 remains near elevated levels following a powerful advance led by technology, artificial intelligence, and communication-services stocks. Bank of America continues to carry a year-end S&P 500 target of 7,100, while maintaining a more selective stance on individual equities rather than broad index exposure. Valuation and Concentration Raise Market Concerns Bank of America pointed to several areas of pressure across US stocks, including stretched valuations, rising speculation, and heavy concentration in a narrow group of market leaders. Subramanian compared some current conditions with early 2020, when market strength was also supported by a limited number of high-performing stocks. High price-to-earnings stocks have continued to outperform cheaper stocks by a wide margin. Bank of America linked that pattern to elevated speculation, especially in areas tied to AI, megacap technology, and momentum trading. The bank also noted that market gains have become less broad. Return dispersion has climbed to post-COVID highs, meaning index-level performance is masking wider gaps between winners and losers. Within the technology sector, the spread between the strongest and weakest groups has reached levels last seen around the 2000 tech bubble. Technology and communication-services stocks still carry earnings strength and momentum, but Bank of America warned that valuations now require stronger delivery from companies to justify current prices. That has made the broader S&P 500 less attractive than selected stocks with better earnings revisions, valuation support, and cash-flow profiles. AI Spending and New Issuance Add Pressure The warning arrives as investors reassess the scale of capital spending tied to artificial intelligence. Bank of America said hyperscaler capital expenditure as a share of operating cash flow could approach 100% by year-end, compared with about 40% in 2023. Higher AI infrastructure spending may support long-term growth, but it can also weigh on margins and free cash flow. That matters for companies that have used buybacks, dividends, and balance-sheet strength to support shareholder returns. Buybacks have been an important source of demand for US equities, particularly among large-cap technology companies. If AI spending consumes a larger share of operating cash flow, companies may have less flexibility for repurchases and other capital return programs. New equity issuance is also being watched as a risk factor. Large IPOs, secondary offerings, and capital raises can absorb liquidity from existing stocks, especially when valuations are already elevated. Strong demand around major private and public offerings has become a broader test of investor appetite during a crowded market. Bank of America’s sector stance remains selective. Energy ranks strongest in its tactical model, supported by momentum, valuation, and earnings revisions. Financials, materials, and consumer staples also rank higher, while consumer discretionary and utilities are lower in the bank’s preference stack. US Stocks Turn Volatile After Sharp Intraday Swings The caution came during a volatile trading period for US equities. Market updates showed $430 billion wiped from the US stock market in about 90 minutes, while as much as $1 trillion was erased from US stocks over four hours during the selloff. The S&P 500 was reported down 0.92%, removing about $620 billion in market value. The Nasdaq dropped 1.13%, wiping out around $400 billion from its market capitalization. Source: X Earlier in the session, the direction had been sharply different. US stocks added nearly $1 trillion at one point, with the S&P 500 rising 1.02% and adding $713 billion in market value. The Nasdaq gained 2.68%, adding about $946 billion. Markets reacted to comments from President Donald Trump pushing for an Israel-Iran ceasefire and signaling that US-Iran negotiations remained possible. The shift in geopolitical expectations added to rapid moves across equities, technology stocks, and crypto-linked assets. Apple also came under pressure, with AAPL stock falling 5% from its intraday high after the company unveiled Siri AI, described as its largest AI product release to date.
