While today’s elevated equity valuations and narrow leadership may resemble the setup seen at the turn of the millennium, Bank of America analysts say the current market lacks the speculative frenzy that defined the dot-com era.
In a research note this week, BofA equity and quant strategist Victoria Roloff wrote 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).”
Roloff highlighted the bank’s Sell Side Indicator (SSI), a contrarian sentiment gauge based on Wall Street strategists’ recommended equity allocations. According to BofA, the measure “ticked up from 55.7% to 55.9% in November,” marking its second consecutive monthly increase.
Even with this uptick, strategists are still relatively restrained: the SSI remains “1.1ppt below where it started the year” and firmly in “Neutral” territory.
The index, however, is approaching a warning zone. BofA noted that the SSI is “less than 2ppt away from a ‘Sell’ signal,” though it remains further from triggering a “Buy.”
Historically, the SSI has been effective at signaling turning points—often identifying attractive entry points when sentiment was most pessimistic. At its present level, BofA estimates the indicator points to a “healthy S&P 500 price return of 12% over the next 12 months.”
Roloff emphasized that sentiment still isn’t excessively bullish and that technology’s recent dominance is being “supported by earnings growth” rather than speculative excess.
Unlike the late 1990s, BofA observed that “the frenzied price action in IPOs and unprofitable stocks” has been largely absent this cycle.
Still, the bank cautioned that major cloud providers shifting toward “an asset-heavy business model,” combined with rising “AI debt issuance with AI monetization TBD,” could ultimately pressure valuations.
Looking ahead, BofA projects strong S&P 500 earnings growth for 2025, but expects only a “modest 4% price return” by the end of 2026.