The market is making new highs. Most stocks are not.
The S&P 500 keeps ripping to record territory, but Bank of America’s Michael Hartnett says the internals are giving off major dot-com déjà vu. His latest Flow Show note points out that only 21 stocks — roughly 4% of the index — are hitting new highs. Back in March 2000, right before the internet bubble popped, the number was 20. Cute? No. Comforting? Also no.
A rally with a very small guest list
The problem here isn’t that the market is falling apart today. It’s that the rally has become absurdly concentrated. Hartnett says classic bubble ingredients are already in the mix:
- exponential price action
- low volatility
- elevated valuations
- extreme concentration in a tiny group of mega-cap names
In other words: the market looks less like a broad-based parade and more like a VIP club with a very strict door policy. BofA says 222 stocks in the index are more than 20% below their highs, and 109 are down more than 40%. Meanwhile, the S&P 500 is trading around 29 times trailing earnings. Not exactly bargain-bin behavior.
The contrarian playbook is already written
Hartnett isn’t screaming “crash tomorrow.” He’s basically saying the crowd is getting too comfy. BofA even nudged its Bull & Bear Indicator up to 8.5, which pushes it deeper into contrarian sell-signal territory. That indicator has flashed 17 times since 2002, and the average aftermath has not been kind to risk assets: global stocks lost about 2% to 3% over the next two to three months, with worse drawdowns sometimes following.
His post-bubble road map? Very 1929-meets-Morning-After:
- long bonds
- defensive sectors that got left for dead during the rally
- “long humiliation, short hubris” in equities
That’s a fancy way of saying he likes the boring stuff if the AI-fueled winners finally cool off. Utilities and consumer staples are his historical examples of what can lead after a mania breaks. Big picture: when only a sliver of the market is carrying the whole index, you may not be in a healthy rally — you may be in a very crowded one.