Bank of America Securities said in an Oct. 6, 2026 research note that the S&P 500 and Nasdaq have held up even as bond yields surged, while market breadth has fallen to historically low levels. The bank argued that narrow breadth is a classic sign of bubble formation, though it said the current AI-driven trade has not yet reached the kind of extremes seen at the peak of the dot-com era.
The note said technology stocks have shown an asymmetric response to moves in the 10-year Treasury yield: gains when yields fall are roughly three times the size of losses when yields rise. Over the past month, the Nasdaq climbed about 6% even as the 10-year yield rose by around 50 basis points.
BofA also pointed to its Bubble Risk Indicator, saying roughly 15 S&P 500 constituents had readings above 0.8, representing about 2% of total market capitalization. At the height of the internet bubble, that figure stood at 50 to 100 stocks, accounting for 20% to 40% of market value. On positioning, the bank recommended a November QQQ 775/825 call spread at an indicative price of $11.63, with a maximum payout ratio of about 4.3x, and said selling 15-delta puts could cut the cost by roughly 50%.
Bank of America Securities said in a research note dated Oct. 6, 2026 that the S&P 500 and the Nasdaq have remained resilient despite a sharp rise in bond yields, even as market breadth sits near historical lows.
Tech stocks show an uneven response to rates
According to the note, technology stocks react asymmetrically to moves in the 10-year Treasury yield. When yields fall, the sector’s gains are about three times the size of the losses seen when yields rise. Over the past month, the Nasdaq gained about 6%, while the 10-year yield increased by roughly 50 basis points.
BofA compares current conditions with past bubble peaks
BofA said around 15 S&P 500 constituents have a Bubble Risk Indicator, or BRI, above 0.8, representing about 2% of total market capitalization. At the peak of the internet bubble, the comparable range was 50 to 100 stocks, accounting for 20% to 40% of market value.
The bank said low market breadth is a typical feature of bubble formation and usually does not stop until the bubble breaks.
Positioning ideas focus on QQQ and NDX upside exposure
BofA said optimism around technology has outweighed macro and policy uncertainty, and investors unwilling to join the narrow AI-led rally risk underperforming.
On positioning, the bank recommended buying a November QQQ 775/825 call spread at an indicative price of $11.63, with a maximum payout ratio of about 4.3x. It added that selling 15-delta put options could reduce the cost by about 50%. The note also recommended buying NDX call options if rates move higher but remain range-bound.
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