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BOFA FLAGS BUBBLE RISKS IN 2025 RALLY

The risk of a stock market bubble is rising, warn BofA analysts, as central banks ease and regulators loosen the reins. The global policy rate has dropped from 4.8% to 4.4% over the past year, they said, with further cuts expected. The rate is expected to decline further to 3.9% over the next year, according to their projections. Meanwhile, U.S. policymakers are eyeing reforms to boost retail investor participation, like allowing private equity in 401(k)s and relaxing day-trading rules.

BofA strategist Michael Hartnett sums it up as: "Bigger retail, bigger liquidity, bigger volatility, bigger bubble". Despite record highs in the S&P 500 .SPX, U.S. equities are lagging international peers in 2025. Flows into bonds and crypto are surging, while hedge funds remain defensively positioned. The benchmark index dropped significantly down ~17% at one point, before rebounding in April. With the Federal Reserve's next move just days away, investors face a market that's both buoyant and brittle. The rally has been powered by easy money and looser rules, but those same forces could be laying the groundwork for instability.

(Joel Jose)

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