US stocks climbed on Monday as gold rallied to lead in a big week filled with a Federal Reserve rate decision and earnings reports from Big Tech's heaviest hitters. The Dow Jones Industrial Average (^DJI) added 0.6%, and the S&P 500 (^GSPC) rose 0.5%. The tech-heavy Nasdaq Composite (^IXIC) gained 0.4%, following back-to-back weekly losses for the three indexes. Signs of cautious optimism gripped Wall Street after President Trump said he would send "border czar" Tom Homan to Minnesota to manage ICE oper ...

Core Viewpoint - The bubble in US Big Tech stocks has further potential for growth, and investors should prepare for additional gains according to Bank of America strategists [1] Group 1: Historical Context and Performance - A study of 10 equity bubbles since the early 20th century revealed that these periods of extreme overvaluation typically yield average trough-to-peak gains of 244% [2] - The "Magnificent Seven" stocks have already risen 223% from their March 2023 low, indicating that they have "more to go" [2] - Historical stock bubbles often concluded with trailing price-to-earnings (P/E) ratios of 58, while the current benchmark is 29% above its 200-day moving average [3] Group 2: Current Valuations and Market Sentiment - The Magnificent Seven, which includes Tesla, Alphabet, Apple, Meta, Amazon, Microsoft, and Nvidia, currently has a trailing P/E ratio of 39 and is only 20% above its 200-day moving average [4] - Investor appetite for these tech megacaps has driven their stocks to all-time highs this year, showing resilience against market shocks [5] - The S&P 500 Info Tech Index has surged 56% from its low in April, with investors consistently buying into dips [6] Group 3: Economic Factors and Future Outlook - A favorable macroeconomic environment, ongoing enthusiasm for AI, and expectations of further Federal Reserve interest-rate cuts are supporting the tech sector [6] - The BofA fund manager survey indicated that "Long Magnificent Seven" is viewed as the most crowded trade by 42% of respondents for the second consecutive month [6] - Bubbles are typically short-lived and concentrated, as evidenced by the tech sector's 61% rise in six months during the 2000 internet stock rally [7] Group 4: Investment Strategy - Investors are advised to "barbell" their exposure to the Big Tech bubble by also holding "distressed value" stocks, which can benefit from the economic growth spurred by hyper-valuation [10] - Potential examples of distressed value plays include markets in Brazil, the UK, and global energy stocks [10]