BofA: Low market breadth is a bubble hallmark, AI trading has not yet reached the breaking point.

According to Chaoxiang Research, a BofA Securities research report dated October 6, 2026 states that the S&P 500 and Nasdaq have withstood a surge in bond yields, yet market breadth remains at historical lows. Technology stocks exhibit asymmetric sensitivity to 10-year yields, gaining approximately three times their losses when yields fall as they do when they rise. Over the past month, the Nasdaq has climbed roughly 6%, while the 10-year yield has risen by about 50 basis points. Approximately 15 S&P 500 constituents have a Bubble Risk Index (BRI) above 0.8, representing around 2% of market capitalization, compared to the internet bubble peak where this number reached 50 to 100 stocks accounting for 20% to 40% of market cap.

BofA notes that low market breadth is a classic hallmark of bubble formation and typically persists until the bubble bursts. With tech sentiment overshadowing macroeconomic and policy uncertainties, investors who shy away from the narrow, AI-led rally face significant underperformance risk. In terms of positioning, BofA recommends buying QQQ November 775/825 call spreads, with an indicative price of $11.63 and a maximum payout ratio of roughly 4.3x, while mitigating the premium cost by selling 15-Delta put options to cut expenses by approximately 50%. Additionally, investors should buy NDX call options, predicated on the outlook that interest rates will remain higher but trade within a consolidating range.