Most investors who pile into the S&P 500 in 2026 think they own the entire stock market. What they actually own is nothing more than a heavy bet on Big Tech — and right now, strategists at BofA Global Research think that bet has run its course.
The opportunity, they think, is in the sectors nobody wanted before.
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Despite a sharp pullback last week, the seemingly relentless rally in the S&P 500 SPX over the past few months has shown nothing but a deeply divided stock market. A team of strategists at BofA Global Research, led by Savita Subramanian, said the rally has triggered “70% of the signposts” of a bear market, which typically precede a peak by the S&P 500, and warn that additional caution should be taken by investors.
“Red flags emerged over the past month, pointing to a soft patch ahead for the S&P 500 index and for tech,” Subramanian and her team said in a client note. “High P/E stocks led low P/E stocks by a wide margin, a sign of excessive speculation,” they said.
The price-to-earnings (P/E) ratio is a valuation metric calculated by dividing a company’s stock price by its earnings per share (EPS) for the coming 12 months. A high P/E ratio means investors expect rapid future profit growth for the company, but it can also show that a stock is overvalued.
Another bear-market signal indicates “lofty” long-term growth expectations for the S&P 500, which have breached “levels consistent with equities being more vulnerable to disappointment,” the BofA Global team added.
The spread between the S&P 500’s best and worst performers is also near levels last seen during the COVID-19 pandemic.
Within the information-technology sector of the S&P 500, that dispersion has become even more pronounced. The spread between the median return of top- and bottom-performing quintiles over the past three months is the highest since February 2000, according to data compiled by the team (see chart below).
Megacap technology stocks, mainly AI and chip names, have done most of the heavy lifting in a year that has seen the S&P 500 rise nearly 9% year to date — despite the high degree of market uncertainty around the Iran conflict, how high inflation might go and interest-rate outlook under the new Fed Chair Kevin Warsh.
See: The key to the upcoming Fed meeting? How Warsh reacts to all the hints of a rate hike.
