A “baby bubble” is forming in the U.S. stock market due to investor enthusiasm for “proprietary technology” and artificial intelligence, according to BofA Global Research.
The AI bubble is a “front line” for interest rate cuts by the Federal Reserve, BofA investment strategists warned in a Jan. 25 research note. Many investors expect the Fed to begin lowering benchmark interest rates this year as inflation rises. This has eased significantly from the peak in 2022.
But strategists said the real interest rate on the 10-year Treasury would need to return to 2.5% from the current 1.75% for the bubble to burst.
BOFA Global Research Note (dated January) 25, 2024
The U.S. stock market has been on the rise this year, with technology company stocks driving the S&P 500’s rise in January, hitting record highs one after another. Chip maker NVIDIA’s stock NVDA,
Data from FactSet shows it has soared about 23% by 2024, last checked.
Meanwhile, the S&P 500 index closed at a record high of 4,894.16 on Thursday, marking its sixth straight day of gains and its longest winning streak since Dec. 14, according to Dow Jones Market Data.
U.S. stocks ended mostly lower on Friday, with the S&P 500 SPX down 0.1%, the Nasdaq Composite down 0.4% and the Dow Jones Industrial Average DJIA up 0.2%, according to preliminary data from FactSet.
Still, the S&P 500 is up 2.5% so far this year after surging 24.2% in 2023 on the back of big gains for big tech companies.
