'Macro fog' and credit cockroaches are among the top 5 risks to the S&P 500, BofA says

Core Viewpoint - The S&P 500 has experienced another year of double-digit gains, largely driven by enthusiasm for AI, but Bank of America warns of emerging unique risks that could impact the market's continued rally [1][2]. Group 1: Market Valuation and Risks - The S&P 500 appears expensive by historical standards, with valuations surpassing those seen during the 1990s tech boom [3]. - Despite stronger financials and lower debt among growth companies, several risks remain that investors should not overlook [3]. Group 2: Bear Market Signals - Bank of America analysts indicate that signs of a bear market are emerging, with 60% of the tracked warning signals flashing, suggesting a potential peak and subsequent bear market [4]. Group 3: AI and Consumer Spending - The AI boom may conflict with consumer resilience, as companies might reduce white-collar jobs that have historically supported consumer spending, leading to a lowered rating for the consumer discretionary sector [5]. Group 4: Government and Market Dynamics - There are risks associated with the interplay between mega-cap companies, private firms, and the US government, where government stock purchases may complicate market dynamics [6]. Group 5: Macroeconomic Uncertainty - Macroeconomic uncertainty, exacerbated by tariff impacts and a lack of new data due to the government shutdown, is causing investors to operate with limited visibility, which could hinder economic activity [6]. Group 6: Current Market Performance - The S&P 500 has risen 15% in 2025, driven by ongoing enthusiasm for AI, but Bank of America identifies credit concerns and macroeconomic uncertainty as significant risks to the rally [7].