Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. >> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 9 to 11. The Flow Show A Short History of Bubbles Scores on the Doors: crypto 16.3%, oil 7.0%, US dollar 3.3%, commod 2.8%, stocks 2.6%, cash 0.6%, HY bonds -0.3%, IG bonds -2.3%, gold -3.9%, gov bonds -4.0% YTD. The Price is Right: credit the “glue” of any bull market…IG bond spreads tight-as-a-drum, close to post-Covid lows of 86bps (despite record $310bn issuance); but equity bull so narrow…top 5 stocks = 75% of S&P500 YTD gain, top 3 tech stocks = 90% of tech sector YTD gain, US equity “breadth” currently worst since Mar’09 (Chart 2). Tale of the Tape: new consensus "all-weather" asset classes are corporate bonds & tech stocks…inflows to both on course for blowout years…YTD annualized $0.5tn to IG bonds, $85bn to tech sector funds – Charts 4 & 5). The Biggest Picture: long, illustrious bubble history…South Sea, Mississippi monopolies of 1710s, Dow in Roaring 1920s, gold in inflationary ‘70s, Japan in ‘80s, internet in ‘90s, China 2000s, Great Bond Bubble 2014-20, crypto, FAANG, tech disruptor derivatives; no two bubbles alike (try blowing a couple yourself) but similarities to gauge Magnificent 7 today are catalyst, price, valuation & "price of money" (see Table 1, page 2 for more). Table 1: A Short History of Bubbles Bubbles in Price, Velocity, Valuation, Yield Source: BofA Global Investment Strategy, Frehen (2012), Bloomberg, Global Financial Data, Refinitiv Datastream; velocity: price vs 200dma (%) at peak; valuation: trailing P/E; yield: direction of bond yields 3-6 months prior to peak. BofA GLOBAL RESEARCH More on page 2… Bubble Peak Ris e Dec line V eloc ity V aluation Y ield Mis s is s ippi C o.17202955%-95%73%n/aS outh S ea C o.1720707%-89%188%n/aRoaring 20s1929153%-53%21%19xNifty Fifty1972153%-53%9%54xG old1980428%-65%142%n/aBlac k Monday1987111%-41%21%19xJ apan1989149%-64%12%67xDotc om2000192%-73%55%65xS audi A rabia2006316%-67%28%124xC hina2007513%-73%37%53xG ov t bonds2020 +$1 8.4tn-$1 ...
