Investing.com -- Bank of America told clients in a note on Wednesday that it would take a lot for macroeconomic forces to derail the artificial intelligence-driven rally in technology stocks, even with long-term bond yields at multi-year highs.
Equity-linked analyst Benjamin Bowler said rising rates, sticky inflation, fiscal concerns and a leadership change at the Federal Reserve have investors on edge heading into a seasonally volatile stretch.
But he acknowledges that history suggests macro headwinds struggle to disrupt tech euphoria, noting that U.S. 30-year yields rose 200 basis points and the Fed hiked more than 100 basis points while the Nasdaq soared in the late 1990s.
Bowler added that Middle East tensions have also failed to temper enthusiasm so far. He explained that technology earnings are currently outstripping share prices, causing the core of U.S. AI names to de-rate, while the firm's bubble-risk indicator remains subdued for the broader Nasdaq.
That does not mean investors should avoid protection. "This doesn't mean not to hedge macro risk," Bowler wrote, noting that volatility markets look cheap because they do not yet appear concerned about the risks.