BofA: Barbell Strategy for the 'Late Bubble'

Bank of America Securities released the latest issue of "The Flow Show" weekly report on May 7th, with its core argument directly pointing to an ongoing rotation of assets: funds are moving from the extremely concentrated technology stock bubble to long-term undervalued physical cyclical assets. The report names this strategy "Bubble Barbell" - going long on both the "arrogant" AI chip craze and the "humiliated" commodity materials lowlands.

The current macro background is extremely rare in history. U.S. stocks are growing at an annualized rate of 20%, and gold has an annual return rate of up to 30%. The simultaneous occurrence of stocks and gold bulls has only happened once in wartime and once during stagflation in history. At the same time, the United States is in a period of nominal GDP super-expansion cycle from the second quarter of 2020 to 2027, with a total increase of 75%, from 20 trillion U.S. dollars to 35 trillion U.S. dollars. Wall Street consensus expects a nominal GDP growth of 5.5% in 2026, and S&P 500 EPS growth of 20%, which provides strong fundamental support for commodities, emerging markets, and small-cap stocks.

Materials sector is the direction Bank of America has focused the most on in this report. The sector currently accounts for only 2% of the S&P 500 market value, close to the lowest point in the past 30 years - the last time it reached the same low level was just before the collapse of the Internet stock bubble in September 2000. Bank of America lists five catalysts: global strategic competition for key minerals, global military expenditure approaching 3 trillion U.S. dollars, underlying demand for physical materials driven by AI capital expenditure (copper, electricity, heat dissipation, etc.), more than 4 million housing shortages in the United States, and the implicit appreciation trend of the renminbi against the U.S. dollar. From a technical point of view, the Steel ETF (SLX) is testing its historical high before the commodity super-cycle peak in 2008.

On the "arrogant" side, Bank of America does not recommend leaving technology. The "AI Top Ten" (Tech Seven Sisters plus Broadcom, Micron, AMD) currently accounts for 40% of the total market value of the S&P 500, approaching the concentration extreme of several famous bubbles in history: the "Nifty Fifty" at 40% in the 1970s, the 1999 technology telecom bubble at 41%, and the Japanese stock market accounting for 44% of the global market value at the end of the 1980s. Bank of America's judgment is: the late stage of a bubble is often the most intense increase stage, and it is not too early to leave, but a hedge needs to be established on the other side.

The direction of the hedge, Bank of America has explicitly ruled out bonds. The report cites historical rules: the end of every prosperity bubble is accompanied by a sharp rise in bond yields - U.S. Treasury yields rose by 200 basis points before the "Nifty Fifty" broke, Japanese bond yields rose by 230 basis points before the Japanese bubble burst, and U.S. bond yields rose by 260 basis points before the internet bubble burst in 1999. In an environment of nominal economic overheating, bonds are not a safe haven.

Fund flow data confirms this judgment. This week, a total of $136 billion flowed into the cash market, the largest single-week inflow since January 2026; investment-grade bonds inflow of $16.4 billion also set a new high for the year - this is a typical defensive risk-aversion move. At the same time, emerging markets outflowed $11.6 billion in a single week, and Chinese stocks outflowed for the sixth consecutive week, with a total of $47.5 billion drained in six weeks.

The holding structure of Bank of America's private wealth clients shows another extreme: stock positions are as high as 65.3%, the highest since October 2021; bond positions have dropped to 17.5%, the lowest since March 2022; cash positions are only 9.9%, setting a record low for this century. It is worth noting that over the past four weeks, this group of "smart money" has been quietly adjusting positions - buying energy, dividend, municipal bond