US stocks are close to reaching their tech bubble peak relative to bonds, says Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch Global Research.
Hartnett points out that if the S&P 500 exceeds 2540 in conjunction with a 3% yield on the 10-year Treasury bond then US stocks will reach an all-time high versus US bonds, surpassing the prior tech bubble peak reached in March 2000 (see Chart 1).
Whilst Hartnett believes it is too early to call the “big top” in risk assets, he thinks it will be credit that will be the key factor going forward, leading to a “treacherous period of… manias, panics or crashes” in the longer-term.
He says the catalyst for the bull run in equity markets since 2009 has been the revolutionary monetary policy of central banks in which central banks have cut rates 679 times and bought $14.2tn of financial assets (see Chart 2). This, however, is coming to an end and Hartnett says the period of excess returns in equities and corporate bonds is therefore coming to an end too.