LIVE MARKETS-"Watch out" but don't "get out" yet - BofA

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"WATCH OUT" BUT DON'T "GET OUT" YET - BOFA

Boom and bubbles always end with signs to "watch out" and signs to "get out", reflect Bank of America investment strategists in this week's flow show report.

Right now they're seeing more of the former than signs to scarper.

Why?

BofA flags magnificent 7 stocks' concentration and heightened valuations as "watch out" signs, as well as the continued flow of global and retail money into tech.

But critically the Fed is not hiking interest rates and yields are not spiking, events, they say, are always the "get out" tells.

"…big shorts must bide time; meantime, we short hyperscaler bonds…cash flow insufficient to fight AI capex arms race."

They highlight that hyperscalers have issued $120bn of investment grade bonds in the last seven weeks.

In an accompanying chart, they show hyperscalers' capex as a percentage of cash flow at around 68% currently, with BofA estimating this will rise to 80% in 2026.

They count Amazon, Alphabet, Meta, Microsoft and Oracle as hyperscalers.

BofA also highlights that hyperscalers' spreads have risen from 50bp in September toward 80bps.

"Note US tech bond prices (CITE) fell 8% in 12 months prior to Mar’00 bubble peak."

(Lucy Raitano)

EARLIER ON LIVE MARKETS:

EUROPEAN GAS STORAGE THIS WINTER LOOKS A BIT FRAGILE CLICK HERE CLICK HERE

TRUMP ONE YEAR ON: WHAT'S NEXT? CLICK HERE

STUTTERING START; MEDIA SECTOR GETS ITV BOOST CLICK HERE

EUROPE BEFORE THE BELL: FUTURES SIGNAL HIGHER OPEN CLICK HERE

THE AI DIP MAY NOT BE DONE CLICK HERE