BofA Says ‘It Better Be Different This Time,’ as Stock Valuations Give Dotcom Bubble Vibes

With U.S. stocks sitting near record highs, Wall Street analysts say one key metric is starting to draw dotcom bubble comparisons.

The S&P 500’s price-to-book value ratio has climbed to 5.3, a touch above extreme valuations seen in March 2000, right before the dotcom bubble burst, according to Bank of America market strategist Michael Hartnett.

Except, “it better be different this time,” Hartnett said in a note to clients Thursday.

Factors that would suggest the current market cycle is unlike the one in the 1990s—when tech stock valuations ballooned, and subsequently burst in the early 2000s—include bond allocations, the boom in artificial intelligence, currency debasement as well as global rebalancing away from the U.S. to the rest of the world, he said. However, investors partying on hopes the Federal Reserve cuts rates sooner rather than later could drag on the U.S. dollar, as rate cuts would lower the returns and attractiveness of investments in the currency.

The firm’s Bull & Bear Indicator sits in neutral territory, at a 6.1 on a scale of zero to 10 that measures extreme bearishness to extreme bullishness.

“If not different this time, bonds get some love,” Hartnett wrote; international stocks would be favored over the S&P 500 too.

Investors appear “pumped” with expectations the Fed could soon join the “central bank rate cut party,” with valuations being the only hurdle to pushing corporate bonds and stocks higher, he said. Traders are currently pricing in a roughly 87% chance the Fed will cut rates at its next meeting in September, according to the CME Group’s FedWatch tool.

However, a sharp pivot from Fed’s recent policy stance could also give rise to fresh debates on the central bank’s independence, and “disruption [equals] debasement,” Hartnett said, suggesting a policy disruption could drive the U.S. dollar index below 90 and push investors to seek inflation and currency devaluation hedges in gold, crypto, and emerging markets in the second half of the 2020s. The U.S. dollar index, which measures the relative strength of the dollar compared to other currencies, has declined more than 9% this year, at around 98 as of Friday afternoon.

A weaker dollar might prove useful for the Trump administration to see a “’25/’26 boom & bubble,” Hartnett said, which he added could be an easy way “to reverse path of US debt & deficit trends.”