BofA's Hartnett: "The valuation bubble of the 'Magnificent Seven' in the US stock market is far from peaking."

``` According to Bank of America’s analysis, the valuation bubble formed in the past two years among large US tech stocks has not yet peaked, and there is still room for further gains. The Bank of America team led by strategist Michael Hartnett pointed out in a report that investors should be prepared for the continued rise of the “Magnificent Seven” US stocks. After studying the ten largest global asset bubbles in capital markets since the last century, the team found that, compared with history, the current tech stock boom has not yet reached historical highs in terms of valuation or gains. The analysis noted that current valuation indicators for the “Magnificent Seven,” such as price-to-earnings ratios and deviation from key moving averages, also support the view that there is still upside potential. The strategists believe this makes the group “the best bubble proxy today.” This view provides new support for the currently high-flying tech stocks. So far this year, investor enthusiasm for US tech giants has remained strong, pushing major stock indices to record highs. History of Bubbles: The Rally May Not Be Over Hartnett and his team’s research shows that, among the ten major stock market bubbles since the early 20th century, the average gain from bottom to peak was as high as 244%. In comparison, the “Magnificent Seven”—Tesla, Google, Apple, Meta, Amazon, Microsoft, and Nvidia—have risen 223% cumulatively from their low in March 2023. Hartnett wrote in the report that this means the group “still has room to rise.” In terms of valuation, the conclusion is the same. When historical stock market bubbles burst, their trailing P/E ratios typically reached 58 times, with prices 29% above their 200-day moving average. Currently, the “Magnificent Seven” have a trailing P/E ratio of 39 times, with prices only 20% above their 200-day moving average. Market Heat Remains: AI and Rate Cut Expectations as Drivers Robust market sentiment and macro environment are key factors supporting the continued rise in tech stocks. A positive macroeconomic backdrop, sustained enthusiasm for artificial intelligence, and expectations of further rate cuts by the Federal Reserve have all provided tailwinds for the sector. Market data also reflects investors’ enthusiasm. Since its low in April this year, the S&P 500 Info Tech Index has surged 56%, with investors choosing to buy almost every dip during this period. A Bank of America fund manager survey released this week showed that “going long the Magnificent Seven” was seen as the most crowded trade for the second straight month, receiving recognition from 42% of respondents. This highly concentrated trend also fits the historical characteristics of bubbles. The Hartnett team pointed out that bubbles are often short-lived and highly concentrated. For example, at the peak of the dot-com bubble in 2000, the tech sector surged 61% within six months, while all other sectors in the S&P 500 declined that year. Although optimistic about the extension of the tech stock bubble, Hartnett suggests that investors take a more balanced approach to risk management. He noted that as the bubble swells, such extreme valuations could also stimulate overall economic growth, thereby creating opportunities for other assets. Therefore, Bank of America strategists recommend that investors use a “barbell” strategy: while holding large tech stocks, also allocate some “distressed value stocks.” Risk Warning and Disclaimer The market has risks; investments need caution. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular circumstances. Investing accordingly is at your own risk. ```