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zhitong finance pp learned that bank of america strategist michael hartnett warned that the euphoria in the stock market after the federal reserve’s interest rate cut has increased the risk of a bubble, making bonds and gold attractive tools to protect against recession or rising inflation.

the strategist, who was largely bearish on u.s. stocks last year, has previously said he prefers bonds for 2024. he said the stock market is currently pricing in further easing from the federal reserve and earnings growth of around 18% for s&p 500 companies by the end of 2025.

“the risks aren’t getting any better, so investors are forced to chase” the rally, hartnett said. however, he warned that “bubble risks” are returning and recommended buying bonds and gold on dips.

the strategist also said that in the event of a soft landing, stocks outside the u.s. and commodities are good bets, the latter as a hedge against inflation. he said international stocks are cheaper and are beginning to outperform u.s. stocks.

global stocks rose on thursday on optimism that the federal reserve's 50 basis point rate cut had kicked off an easing cycle in a timely manner and avoided a recession in the u.s. the s&p 500 returned to its all-time high after slipping from its july levels. the tech-heavy nasdaq 100 also surged 2.6%, its biggest one-day gain in more than a month.

s&p 500 hits record high after fed cuts rates

however, there were signs of caution in the market on friday.

a bank of america survey earlier this month found investor sentiment had improved on bets on a rebound in economic growth, though a u.s. recession and accelerating inflation were seen as the biggest tail risks for the market.

hartnett has previously warned of a possible bubble in tech stocks amid the boom in artificial intelligence.