Bank of America Strategists: Bullish on U.S. Stocks, Bearish on Indexes

Source: Global Market Broadcast

Savita Subramanian, Head of US Equity and Quantitative Strategy at Bank of America, reiterated her cautious stance—expressed over the past several months—during a May 28 interview. She stated that she is optimistic about individual stocks but not about the current index.

Subramanian said, “I am optimistic about individual stocks, but at this stage, I am not optimistic about the index.”

Subramanian's concern does not stem from macroeconomics, but from changes in the structure of the index itself. Currently, the S&P 500 is dominated by leading artificial intelligence (AI) companies. The market chases these companies, focusing on their future prospects rather than current profitability. She expects that by 2026, there will be a revaluation in the market, and the valuation premium of these stocks will also shrink.

The issue of stock concentration within the market is particularly prominent. Data from First Trust Group shows that by the third quarter of 2025, the seven major US tech giants will account for about 54% of the S&P 500’s gains. This means that the performance of a few companies based in California now almost entirely determines the retirement account returns for all Americans.

Earlier this year, Bank of America detailed its bearish logic: Out of the 20 valuation indicators tracked by the bank, 18 for the S&P 500 showed overbought conditions.

In response, Subramanian suggested that investors avoid crowded trades and shift toward sectors with lower valuations and more stable performance, prioritizing the healthcare and real estate industries, and favoring consumer staples over consumer discretionary within the consumption sector.

Beyond the valuation issue, there is another layer of concern. She believes that if AI technology is fully implemented and develops as expected, it will replace a large number of human jobs. With fewer jobs, consumer spending—which underpins the economy—may also weaken. Investors now have tough choices to make.

Index investing hides risk, affecting US retirement accounts

Beyond professional analysis, this judgment is closely related to ordinary investors. Tens of millions of Americans hold S&P 500 index funds in their 401(k) retirement accounts, but holding such index funds now does not mean having diversified market exposure; instead, it is a passive heavy bet on a handful of AI giants.

For example, if an investor holds $100,000 in S&P 500 index funds, more than $30,000 of that is actually invested in just a few AI giants—these companies have a very high weighting in the index. If these leading stocks fluctuate, it will be difficult for other index components to offset the declines.

This is the essence of Subramanian’s view. She recommends focusing on individual stocks and treating indices with caution, essentially reminding investors to diversify risk: many people have unknowingly concentrated their bets on just a few stocks and should shift to sectors where market expectations are more rational.