Although the S&P 500 closed at a new high on the last trading day of May, Bank of America (BoA) strategists say the advance is concentrated in a very small group of stocks. Of the 500 S&P constituents, only twenty reached record highs, and only seven of those were not directly linked to artificial intelligence (AI). Michael Hartnett, BoA’s chief strategist, noted in a weekly note that the situation closely resembles the March 2000 dot‑com peak, when exactly twenty stocks also sat at their highs.
Hartnett expects that central bank actions and rising interest rates will eventually stop the bull market, and he encourages clients to move toward more defensive positions. BoA also refers to historical “post‑bubble investor scenarios” examined since 1929, which suggest that successful allocations after similar episodes have typically combined bonds with defensively oriented sectors that underperformed during the bubble’s final months.
What drove the May rally?
The rally in May was largely powered by the semiconductor sector, especially memory chip makers. Over a single month Micron Technology rose 88 percent, SK Hynix 81 percent, AMD 46 percent and Samsung 44 percent. These gains pushed the market capitalizations of these companies to around or toward the trillion‑dollar level. The Nasdaq Composite, overweight in technology names, jumped 25 percent across April and May — its strongest two‑month performance in more than two decades.
Market breadth and vulnerability
Growing concern among strategists and investors centers on the rally’s limited breadth. Market‑breadth indicators, which measure the ratio of advancing to declining stocks, retreated from their late‑March spike beginning in mid‑April, a movement described in the coverage as a clear bearish signal. Data from BCA Research show that as of May 20 only 55 percent of S&P 500 constituents traded above their 200‑day moving average.
Arthur Budaghyan’s research team highlighted that while U.S. and emerging‑market indices have hit new highs, the rise was extremely narrow. The team emphasized that low market breadth is often a sign of increased stock market vulnerability.
Implications for investors
BoA and other analysts warn that if the rally fails to broaden across more stocks and sectors, it could mark the end of the current upswing. Hartnett’s recommendation is to shift toward defensive exposures — for example by increasing allocations to bonds and defensive sectors within portfolios.
This article does not constitute investment advice or a recommendation.
