• Bank of America's new Bubble Risk Indicator flags U.S. materials stocks, gold, silver, and South Korea's Kospi as showing bubble-like behavior, while U.S. equities and megacap tech remain relatively stable.
  • The bank plans weekly updates on frothy markets amid strong client interest, warning that AI-driven innovation could fuel more unstable, bubble-prone conditions.
  • European stocks exhibit unusually high return dispersion in tech and basic resources despite muted index-level gains, adding to the complex market landscape.

Bank of America has added U.S. materials stocks to its list of assets displaying bubble-like price action, alongside gold, silver, and South Korea's Kospi, according to its newly launched Bubble Risk Indicator (BRI). The move signals heightened scrutiny as client interest surges, prompting the bank to commit to weekly updates highlighting frothy areas in global markets. In a note to investors, BofA Global Research cautioned that AI-driven innovation could exacerbate instability, creating more bubble-prone environments, even as U.S. equities and megacap tech show relative calm.

"We're seeing strong demand for insights into these frothy segments," said a BofA analyst familiar with the matter, who spoke on condition of anonymity due to the sensitivity of the data. "The BRI helps flag where exuberance might be outpacing fundamentals, and we'll now track this weekly to keep clients informed." Efforts to reach BofA's media team for additional comment were not immediately successful.

Separately, the bank noted unusually high return dispersion in European stocks, particularly in tech and basic resources sectors, despite flat index-level performance. This divergence suggests underlying volatility that isn't captured by broader market gauges, adding another layer of complexity for investors navigating current conditions. The BRI, which draws on historical bubble patterns like the dot-com era and post-financial crisis bond rallies, identifies these assets based on metrics such as price momentum and investor positioning.

BofA's analysis comes amid a broader bullish outlook for commodities in 2026, driven by structural deficits and inventory buildups that have propelled prices. The bank has issued bullish calls on gold targeting $5,000 per ounce, silver at $65 per ounce, copper at $13,000 per ton, and aluminum at $3,000 per ton, citing factors like fiscal stimulus and AI investment boosting GDP. However, the bubble warning tempers this optimism, highlighting the fine line between sustainable growth and speculative excess.

Investor surveys from BofA show record-low cash levels at 3.3% in its Fund Manager Survey, indicating high risk-asset allocation and potential vulnerability to sharp corrections. Commodities remain overweight at 2022 highs, with metals outperforming energy in the short term, though energy could surprise on the upside if growth accelerates. The bank's research arms, including BofA Securities, emphasize that while no AI bubble is evident in core U.S. tech yet, the spillover effects into other sectors warrant close monitoring.

Market participants are now weighing these signals against ongoing trends, such as copper supply constraints and the impact of U.S. fiscal policies like potential extensions of the OBBBA and TCJA. Without a shift in sentiment, the flagged assets could face increased volatility, though BofA maintains a more bullish stance on 2026 GDP and commodities than consensus forecasts. As weekly BRI updates roll out, they'll provide a real-time barometer for whether these warnings crystallize into broader market stress or remain contained to specific segments.