Bank of America analysts recommend investors begin to reverse the strategy of buying AI capital expenditure beneficiaries while selling white-collar threatened industries and consumption stocks. The bank's note argues that this relative trade is facing pressure as AI capex strength may be more priced in than not. The note states that underestimating US consumer appetite is dangerous and that the market may have already priced in the strength of capital expenditures.
The recommendation comes as the Nasdaq hit a fresh record high and the 10-year and 30-year Treasury yields reached 2002 highs. While the recent market rally has been broad-based, with almost all S&P 500 groups higher, Bank of America suggests this does not mean the rally will end, but rather that investors should be more selective about exposure and consider what they are hedging versus buying aggressively.
The bank points to positioning in staple versus discretionary stocks as evidence of this shift. It notes a continued trade down among white-collar professionals from wants to needs, which is evident in buying of staple stocks catching up to discretionary ones. The analysis highlights that high-paying jobs among these professionals are increasingly at risk.
Market data supporting the context of the note includes an improving advance-decline line over the past couple of days, reversing a prior trend where the ratio of stocks climbing to falling was declining despite higher prices. Materials were the best-performing sector in the recent rally, followed by communication services. Among standout stocks, Nvidia was mentioned, while Mercado Libre was the best performer in the Nasdaq 100, and SpaceX also stood out.