Bank of America Warns of Overly Concentrated Stock Market: Current Market Resembles Height of 2000 Dot-Com Bubble

June 1 – Bank of America (BoA) Chief Investment Strategist Michael Hartnett’s latest report flags that the current U.S. stock market structure closely mirrors the late stages of the 2000 dot-com bubble, urging investors to watch for late-bull-market risks and gradually lean into defensive positioning. Data shows the S&P 500 closed at a record high on its final trading day in May, but only 20 individual stocks hit new 52-week highs, with most concentrated in the artificial intelligence (AI) and semiconductor sectors. Hartnett notes that at the 2000 dot-com peak in March, roughly the same number of stocks also hit new highs. The recent U.S. stock rally has been fueled almost entirely by the AI industry chain: Micron Technology (MU) surged 87.8% in May, SK Hynix jumped 81%, Advanced Micro Devices (AMD) rose 45.6%, and Samsung Electronics gained 43%. This boom pushed the Nasdaq Composite Index up 25% between April and May – its strongest two-month performance in more than two decades. Yet market breadth indicators are signaling underlying weakness. Data from BCA Research shows that as of May 20, only 55% of S&P 500 component stocks were trading above their 200-day moving average. The Advance-Decline Line has been on a downtrend since mid-April, meaning fewer and fewer stocks are joining the index’s rally even as the benchmark hits new highs. Hartnett adds that while speculative froth in the market may not have run its course just yet, central bank policy tightening and a persistently high-interest-rate environment could ultimately mark the end of this bull market. He advises investors to gradually increase holdings in long-term bonds, defensive sectors, and underperforming areas of the market that historically lag in the late stages of a bubble to offset potential pullback risks.