The US market is close to a key threshold that could send tech stocks lower, BofA says.

• BofA is watching the tech-heavy Nasdaq 100 trade against the S&P 500.
• It said a decline in the ratio between the two indexes could signal the end of the “American exceptionalism” trade.
• The rate is currently hovering near its highest level since 2000.

Nasdaq 100 is trading at a level relative to the S&P 500 that could be dangerous for key U.S. trading if the relationship between the two worsens, Bank of America said.

The Nasdaq’s relative performance relative to the S&P is higher than even during the 2000 dot-com bubble. But if the tech index falls relative to the S&P below its 2000 peak, it could spell trouble, write strategists led by Michael Hartnett.

“Watch NDX/SPX as a fall below the 2000 high is a catalyst for rotation from US exceptionalism trades,” they said.

Bank of America Global Research

Investors poured money into the tech-heavy Nasdaq throughout 2024, targeting names associated with new artificial intelligence technologies. But now, with US stocks at 75-year highs relative to the rest of the world, BofA predicts that the theme of “US exceptionalism” is approaching a cyclical peak.

With U.S. financial conditions likely to tighten, traders will increase allocations to international markets in Asia and Europe in the first quarter, the note said.

Among them, BofA expects China to outperform in 2025. While Chinese tech stocks have been unloved, their 26% year-to-date gain matches the 34% gain achieved by U.S. tech stocks.

It’s unclear whether that will lead to a decline in the S&P 500, as analysts expect the benchmark index to either rise or fall by double digits in 2025.

It all depends on the Treasury market: falling bond yields will be the “secret sauce” that could be the catalyst for further gains in stocks.

On the other hand, a higher yield means a big reversal. BofA strategists predict rates will rise further as the bond market adjusts to the coming “inflation boom” and lower interest rates, capping risk assets in early 2025.

“We buy Treasuries with yields above 5%… this triggers asset losses/slower growth,” the bank said.