BofA warns a loss of confidence in AI could magnify losses across markets

The useful part

The concentration of gains in a small group of AI-linked stocks means index-level resilience may be hiding weakness underneath, leaving headline indices exposed if sentiment on AI cracks. On BofA's reading, AI-related earnings, capex updates and any sign of slower spending could become bigger swing factors for US equities than moves in yields, at least until yields climb further. Traders may want to watch the gap between AI leaders and the broader market, including small caps, as a gauge of how much the "AI put" is doing the work.

How it works

• BofA Global Research strategists say the main risk to US stocks is a possible loss of confidence in AI, which they call the "AI put", rather than higher bond yields.
• Fed's Kashkari says inflation is still too high, pencils in one more hike this year --- BofA argues that enthusiasm for AI is now doing the job the "Fed put" once did, which makes a wobble in that...
• This is one team's framing rather than a consensus view, and it depends on investor psychology, which can shift quickly.
• They say fear of missing out on AI is driving aggressive dip-buying and crowding out attention to macro risks.
• They compare it to the "Fed put", with AI enthusiasm now acting as a cushion while the Fed embarks on another round of rate hikes.

What to take from it

The 20 best-performing S&P 500 stocks have added about $1.7 trillion in market value since August 31, while the ot...