Not just Goldman Sachs being pessimistic! Bank of America issues a more jarring warning: U.S. stocks are displaying dangerous signals reminiscent of the dot-com bubble, beware the devastating reckoning after the "liquidity-driven" rally.

The unprecedented rise in technology stocks is causing increasing concern on Wall Street. Following Goldman Sachs' recent warning of limited upside potential for US stocks, Bank of America strategists have also joined in, pointing out that the record-breaking rise in the market is reigniting concerns about a bubble. Bank of America strategists have found that the current trend of the Nasdaq 100 index is highly similar to that of the internet bubble period: in the 16 trading days leading up to Wednesday, the index rose in sync with the 10-day actual volatility on 14 trading days. This significant deviation from the usual pattern where volatility tends to shrink during price increases in history. "This indicates that investors' fear of missing out on the rise seems to outweigh their concerns about a downturn," said Nitin Saksena, head of stock derivatives research at Bank of America. "This is the current psychological state of how people view the market." Looking back at the most intense period of the Middle East conflict in March, technology stocks led the market decline. As expectations of the worst period being over have increased, investors have started pouring into large-cap technology stocks and their call options. Semiconductor stocks have set a record for the longest consecutive rise, with the Nasdaq 100 index recording gains on 14 out of 16 consecutive trading days, the last such continuous rise dating back to 2013. To keep up with this momentum, investors have had to buy technology stocks and call options on the market at a record pace. Data from the Chicago Options Exchange show that the put-to-call ratio for the S&P 500 index fell below 1 last week for the first time since November 2019. Mandy Xu, head of derivatives market intelligence at the Chicago Options Exchange, pointed out, "This is extremely unusual because we usually see more trading volume in put options than in call options." Bank of America warned that this phenomenon suggests that the market may experience a "melt-up," and once the market reverses and starts to decline, the previously overheated long positions will face severe liquidation, leading to a significant pullback. While the phenomenon of simultaneous increases in historical volatility and the stock market is rare, it is not without precedent - typically occurring during the rebound phase from a crisis bottom, such as following the global financial crisis or the COVID-19 pandemic. However, the Nasdaq 100 index is only 12% off its peak retracement, and the S&P 500 index is less than 10% off. Saksena described this rebound as "unusually prolonged, intense, and extensive." This abnormal dynamic of "stock prices and volatility rising together" is not limited to the US stock market. Saksena pointed out that the KOSPI index in South Korea, which has risen by over 52% this year, and the volatile movements in the precious metals market at the beginning of 2025, are examples of similar "decoupling of prices and fundamentals." He concluded, "Our macro view for 2026 is that more markets will start to exhibit bubble-like price trends." Coincidentally, the Goldman Sachs team had previously expressed similar cautious views. A report from the team led by Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, showed that the risk of a market downturn remains high, with limited potential for further upside, "the risk-reward structure does not support increasing allocations to risky assets." Goldman Sachs emphasized that valuation-driven downside risks are resurfacing, and its economists have downgraded expectations for global growth and inflation metrics. Both institutions' warnings point to a core vulnerability: this round of rise is largely built on optimistic expectations about easing geopolitical tensions and falling oil prices, making the market highly sensitive to reignited conflicts and energy price rebounds. Citing options market pricing, Goldman Sachs noted that traders currently believe there is a higher probability of a 10% decline in oil prices in the next month than a 10% increase, indicating that if oil prices were to unexpectedly surge, the negative impact on the market could be more severe. In response, Bank of America strategist Saksena suggested that traders could buy call options on technology stocks to seize on the rebound in risk appetite, while hedging against the risk of increased market volatility through a VIX call option spread strategy.