Bank of America Strategist Says Mega IPOs Raise Tech Share in Indexes

Bank of America strategist Michael Hartnett said large planned IPOs from companies including SpaceX and OpenAI could push technology sector weighting in major indexes above previous bubble levels. Technology already accounts for over 44 percent of the S&P 500 Index.

Hartnett stated that adding the new offerings to existing large technology companies would raise market concentration beyond levels seen in past periods of high valuations.

Hartnett noted that strong price gains, increased retail investor activity, and declining volatility have created conditions he described as bubbly. He said further concentration could create challenges for asset managers whose risk rules limit how closely they can follow benchmark weightings.

Indexes heavily weighted toward technology stocks may also mask weakness in other parts of the economy, such as consumer and financial sectors, according to the strategist.

Hartnett reviewed past large IPOs and said offerings such as those from Saudi Aramco and Meta Platforms Inc. had limited lasting impact on broader markets. In some cases, markets were lower nine to twelve months after major debuts. A rise in bond yields is the typical way market expansions end, Hartnett said.

He pointed to two State Street exchange-traded funds as potential signals of how higher yields might affect stock prices. Bullishness among fund managers has reached high levels, Hartnett said, citing a Bank of America survey that showed the largest monthly increase in stock allocations on record.

He reiterated a warning that equities may face a pullback.