Bank of America Warns Bubble Risks Rising in U.S. Equities and Materials-Linked Stocks

Bank of America (BofA) Global Research has issued fresh warnings that U.S. markets are showing signs of speculative excess and bubble-like conditions, amid stretched valuations and heavy capital flows into speculative segments of the economy. While the primary focus has been on technology and AI-linked equities — where valuations have climbed sharply — BofA’s broader analysis suggests that these dynamics may also have implications for commodities and raw-materials-linked stocks as investors chase cyclical exposures in a late-cycle environment.

BofA’s Bubble Risk Indicator tracks fundamental market instability traits such as extreme price momentum and volatility, and recent readings point toward rising speculative pressure across several market niches. Some asset classes — including select cyclical and materials-related stocks that often benefit from macro-driven capital rotation — have seen atypical capital inflows reflecting risk-on positioning, which can amplify downside risk if broader sentiment shifts.

While BofA believes core megacap equities still have some room to extend gains, the bank’s strategic team warns that frothy conditions, overconcentration and stretched valuations can lead to sharp corrections if macro catalysts disappoint or liquidity conditions shift. Investors are advised to consider valuation extremes, structural sector risks, and the potential for volatility spikes in both equity and materials sectors.