BofA Analyst Issues Overbought Warning for US Stocks and Cryptos
Bank of America analyst Michael Hartnett pointed out that following a strong rally in U.S. stocks and cryptocurrencies, these asset classes have become overvalued. Recent data indicate that the price-to-book ratio of the S&P 500 has risen to 5.3 in 2024, approaching the 5.5 peak seen during the tech bubble in March 2000.
Concerns are growing regarding the bubble forming in U.S. stocks and cryptocurrencies. Hartnett noted that if the S&P 500 approaches 6,666 points, the risk of "excessive valuation" would be high in the early months of 2025. However, the bank's bull and bear indicator is not yet showing signs of enthusiasm among global investors. The analyst, who has maintained a more neutral stance this year, was pessimistic about stocks in 2023.
Strong rallies in stock and cryptocurrency markets have been observed. In 2024, the S&P 500 recorded an approximately 27% increase, driven by optimism surrounding artificial intelligence and expectations that Donald Trump's "America First" policies would support local markets, making it its best year since 2019. Trump's support for cryptocurrencies also helped Bitcoin briefly surpass $100,000 this week.
Hartnett stated that Bitcoin, with a market value exceeding $2 trillion, is comparable to the 11th largest economy in the world.
Record inflows into investment funds and market volatility have been highlighted. Bank of America indicated that cryptocurrency funds, which constituted a significant portion of cash flows last week, attracted another large inflow. In the week ending December 4, money market funds withdrew $136.4 billion, marking the largest weekly inflow since March.
During the same period, equities attracted $8.2 billion, bonds received $4.9 billion, and cryptocurrencies saw an inflow of $3 billion, while gold experienced an outflow of $400 million. Notably, cryptocurrency funds recorded their largest inflow to date with a total of $11 billion over four weeks, reflecting investor appetite for cryptocurrencies following Donald Trump's recent win in the U.S. elections.
On regional market trends and interest rates, Hartnett noted the high risk of "overvaluation" for the S&P 500 in the first quarter of 2024 and considered the potential for the EUR/USD pair to break the 1 value. The analyst mentioned that the Fed might ease interest rates in its meeting on December 18, but could only do so if the November U.S. employment figures exceed 275,000 and average hourly earnings grow above 0.3%.
Regionally, U.S. stocks recorded an inflow of $8.2 billion for the eighth consecutive week, while emerging markets showed some activity with inflows of $600 million. On the other hand, European equity markets saw an outflow of $5.1 billion over the tenth week and Japanese equities recorded an outflow of $600 million for the third consecutive week.