For BofA, Magnificent Seven stocks are the new dot-com bubble

BofA's Michael Hartnett says markets are behaving as in past financial bubbles.
The Magnificent Seven (Tesla, Meta, Alphabet, Amazon, Apple, Microsoft and Nvidia) accounted for 45% of the S&P 500's return in January.
With a market capitalization of $12.5 trillion, the group has surpassed the GDP of major cities such as New York and Tokyo.
The Magnificent Seven's continued outperformance highlights behavior very similar to that seen during the tech rally of the late 1990s, Bank of America said.
While falling yields pushed Nasdaq prices higher during the fourth quarter, the dynamic changed in the first month of the year, with yields and stock prices both rising in the first four weeks of 2024.
That kind of market behavior is observed in periods following recessions or in periods of market bubbles similar to the dot-com era, note Bank of America analysts led by Michael Hartnett.
The Magnificent Seven accounted for 45% of the S&P 500's return in January, continuing a streak of outperformance that has extended through 2023.
Excluding Tesla, which has seen a sharp drop in its stock price this year, the group has actually accounted for 71% of the gains in the benchmark index.
With a market capitalization of $12.5 trillion, the group has surpassed the GDP of major cities such as New York, Tokyo, Los Angeles, London, Paris, Seoul, Chicago, San Francisco and Shanghai, BofA says.
While it's still possible the Fed will cut interest rates in March, Hartnett said markets don't seem overly concerned about Jerome Powell's next move.
He stressed that the Fed only serves as a support for asset prices if a “major macro- and market-level change” arrives, such as a rise in inflation or a sharp rise in unemployment.
About 75% of investors are predicting a soft landing, with 20% predicting no landing and 5% predicting a hard landing, BofA notes.
Hartnett's view that the market is exhibiting bubble-like characteristics reflects the concerns of other experts who have recently warned of excessive exuberance in the tech sector, including investment veterans Ed Yardeni, Jon Wolfenbarger and Ted Oakley.
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