Bigger than dot-com? Wall Street bubble warning hits fever pitch

Bank of America strategists are turning up the volume on their market warnings, saying U.S. stocks are starting to look eerily similar to — and potentially riskier than — the dot-com bubble.

Led by Michael Hartnett, the BoA research team argues that a combination of low rates and policies that boost retail investor participation is inflating asset prices at a dangerous pace.

“Bigger retail, bigger liquidity, bigger volatility, bigger bubble,” the strategists wrote, warning that today’s environment could be setting up an even larger reckoning than the dot-com crash of 2000.

A top-heavy market

The S&P 500’s rally has been increasingly concentrated in a handful of mega-cap names, raising red flags among analysts.

As InvestorsObserver recently reported, Nvidia (NVDA) alone now accounts for nearly 8% of the entire index, which is an unprecedented level of single-stock dominance.

And the problem isn’t isolated to Nvidia. According to Tema ETFs, the top 10 S&P 500 stocks now make up almost 40% of the index’s total market cap.

That concentration surpasses even the peak levels seen during the late 1990s bubble, leaving the broader market increasingly vulnerable.

Meanwhile, former banker and analyst Felix Prehn points to valuations as the bigger issue.

The most heavily weighted S&P 500 stocks are now trading at 27 times earnings, topping the 25x peak of 2000. “We’re actually more expensive than the dot-com peak,” Prehn warned.

Frothy conditions, lowered bars

The 30% rebound from its April low has stirred animal spirits, but some analysts are urging caution.

“Any time you have high valuations, you should be on guard for surprises. The biggest risk is that all of this optimism is already priced into markets,” said James St. Aubin, CIO of Ocean Park Asset Management.

That optimism has been fueled by hopes for new trade deals, potential Federal Reserve rate cuts this fall, and stronger-than-expected corporate earnings.

But even earnings “beats” can be misleading when expectations have already been slashed. FactSet’s John Butters highlighted that analysts have trimmed Q2 earnings forecasts by a larger margin than in the past three quarters.

As Butters explained, this isn’t just about quarterly numbers. Analysts often revise full-year growth targets downward in the first half of the year, setting up “beats” that may not signal real strength.

With valuations stretched, earnings bars lowered, and a top-heavy market leading the charge, Bank of America’s strategists say the setup feels uncomfortably familiar… only this time, the bubble could be even bigger.