Bank of America: The Nasdaq relative to the S&P 500 index is approaching a key point, which may trigger a reversal in U.S. stock trading trends
Bank of America strategists pointed out that the relative level of the Nasdaq 100 Index to the S&P 500 Index is close to a critical point, which may lead to a reversal in U.S. stock trading trends. Strategist Michael Hartnett advised investors to shift their funds to markets outside the U.S., particularly Chinese and European stocks. The S&P 500 Index is expected to experience double-digit fluctuations in 2025, and a decline in bond yields could be a key factor for further increases. U.S. stock funds are expected to attract record inflows, while European stock funds may face outflows
According to the Zhitong Finance APP, Bank of America strategists say that the relative level of the Nasdaq 100 Index to the S&P 500 Index is approaching a critical point, which may trigger a release favorable to the trading trend of U.S. stocks. Led by Michael Hartnett, the Bank of America team stated that the relative pricing of the tech-heavy Nasdaq 100 Index is higher than the peak reached in 2000, "allowing investors to feel comfortable going long on U.S. tech stocks and the dollar." At the same time, they wrote in a report that if it falls below this level, it will strongly push people to exit the "U.S. exceptionalism" trade.
Hartnett stated last week that as we enter next year, investors should start allocating more funds to markets outside the U.S., recommending investments in Chinese and European stocks. The S&P 500 Index rose 25% in 2024, similar to the previous year's increase.
Strategists indicated that if history is any guide, the S&P 500 Index is expected to see double-digit gains or losses again in 2025. They noted that the "secret weapon" for further gains is a decline in bond yields.
However, the team expects bond prices to reflect rising inflation and a reduced pace of interest rate cuts early next year, keeping yields high and limiting risk assets. Bank of America's "investment clock" also suggests that commodities will rise in 2025, profits will increase, and interest rates will rise.
Driven by a strong U.S. economy, Federal Reserve rate cuts, and the boom surrounding artificial intelligence developments, the S&P 500 Index continues to trade near historical highs. According to Bank of America's report, U.S. stock funds are expected to attract a record inflow of funds this year, with an annualized scale reaching $448 billion.
In contrast, "unpopular" European stock funds are expected to see an outflow of $58 billion in 2024