(Bloomberg) -- The Nasdaq 100 is approaching a level versus the S&P 500 that could trigger the unwinding of the trade favoring US equities, according to Bank of America Corp. strategists.
Relative pricing for the tech-heavy index over the S&P 500 is holding above a high reached in 2000, “keeping investors comfortably long US tech stocks and US dollar,” said a BofA team led by Michael Hartnett. A crack below that level would be a strong catalyst for rotation out of “US exceptionalism” trades, they wrote in a note.
Hartnett last week said investors should start putting more money into stocks outside the US heading into next year, recommending equities in China and Europe. The S&P 500 has climbed 25% in 2024 following gains of a similar size the previous year.
If history is any guide, the S&P 500 is on track for another double-digit rise or drop in 2025, according to the strategists. The “secret sauce” for a further rally is a decrease in bond yields, they said.
However, the team expects bonds to price a resurgence in inflation and fewer interest-rate cuts in the early part of next year, keeping yields elevated and capping risk assets. BofA’s “investment clock” also implies gains for commodities, increased profits and higher rates in 2025.
The S&P 500 continues to trade near all-time highs, boosted by a strong US economy, Federal Reserve rate cuts and the boom around artificial intelligence developments. US stock funds are set to attract record inflows this year, annualized at $448 billion, according to the BofA note.
By contrast, “unloved” European stock funds are poised for 2024 outflows of $58 billion.
--With assistance from Michael Msika.
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