Strategists at Bank of America suggest that gold and Chinese equities serve as optimal hedges amid the AI-driven trading frenzy pushing valuations to elevated levels. The S&P 500 currently trades at a forward P/E of around 23x, significantly above its 20-year average of 16x, while the so-called "Magnificent Seven" tech giants—accounting for over one-third of the index—command a forward P/E of 31x.

Led by Michael Hartnett, the BofA team noted in a report, "AI stocks remain unchallenged as market leaders, but we favor gold and Chinese equities as the best prosperity/bubble hedges." Since bottoming in early April, this rally has added approximately $17 trillion to the S&P 500's market cap. This week, chipmaker Nvidia (NVDA.US) became the world's first company to surpass a $5 trillion valuation.

Strong earnings from Amazon (AMZN.US) and Apple (AAPL.US) lifted U.S. stock futures on Friday, signaling a potential rebound after Meta Platforms (META.US) plunged due to investor concerns over heavy AI spending.

BofA strategists highlighted that investors are positioning for robust 2026 growth, anticipating lower U.S. interest rates and market-friendly policies under a potential Trump administration. Gold acts as a hedge against inflation risks tied to monetary easing and economic expansion. Prices recently retreated from record highs above $4,300/oz as traders assessed U.S.-China trade truce developments. Data shows global gold funds saw a record weekly outflow of $7.5 billion, ending four straight months of inflows.

Chinese stocks have significantly outperformed the S&P 500 this year, with the MSCI China Index surging 33%, fueled by optimism around China's generative AI competitiveness following DeepSeek's rise. Hartnett's team previously correctly bet on international equities—including Asia and Europe—during Trump's 2016 election, predicting accommodative policies would drive gains.