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Investing.com -- Equity valuations and narrow market leadership may look reminiscent of the year 2000, but Bank of America analysts argue that today’s rally is missing the excesses that defined the dot-com bubble.
In a note on Monday, BofA equity and quant strategist Victoria Roloff said that “although narrow market breadth and lofty multiples rhyme with 2000, we see more of an AI air pocket than a fully inflated AI bubble (at least for now).”
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Roloff pointed to BofA’s Sell Side Indicator (SSI), a contrarian measure that tracks strategists’ recommended equity allocations.
BofA said the gauge “ticked up from 55.7% to 55.9% in November,” marking a second straight month of rising sentiment.
Despite the increase, strategists remain relatively cautious: the SSI is still “1.1ppt below where it started the year” and sits firmly in “Neutral” territory.
Even so, the indicator is now edging closer to a bearish signal. BofA said the SSI is “less than 2ppt away from a ‘Sell’ signal,” though still further from triggering a “Buy.”
Historically, the SSI has proven reliable at flagging market turning points, often signalling opportunities when Wall Street was most pessimistic.
Its current level is said to imply constructive returns ahead, with BofA estimating a “healthy S&P 500 price return of 12% over the next 12 months.”
Roloff wrote that equity sentiment is not at bullish extremes, and that technology’s recent outperformance has been “supported by earnings growth” rather than speculation.
Unlike in 2000, BofA noted that “the frenzied price action in IPOs and unprofitable stocks” is largely absent.
Still, the shift by hyperscalers toward “an asset-heavy business model,” alongside rising “AI debt issuance with AI monetization TBD,” could lead to a valuation de-rating.
BofA expects strong S&P 500 earnings growth in 2025 but forecasts only a “modest 4% price return” by the end of 2026.