Tech stocks surge after March slump as Nasdaq 100 defies volatility
Amid Nasdaq 100's Spectacular Rally, BofA Analysts Warn of Market Bubble
A surge in the Nasdaq 100 has prompted Bank of America analysts to sound the alarm over a potential stock market bubble, driven by an unusual market dynamic where rising prices are accompanied by increasing volatility. Strategists at the bank draw parallels to the dot-com bubble, cautioning that if this trend persists, it could lead to significant market risks in the event of a correction.
According to a Bloomberg report, a record-breaking rally in mega-cap tech stocks has once again raised concerns at Bank of America about the possibility of a market bubble.
The strategists observe a pattern in the Nasdaq 100 reminiscent of the dot-com era: the index has risen on 14 of the past 16 trading days through Wednesday, even as 10-day realized volatility climbed—a stark departure from historical norms, where stock gains typically coincide with declining price swings.
Tech stocks were among the biggest losers in March amid the peak of the Middle East conflict. However, speculation that the worst was over led investors to pile into mega-cap equities and options betting on further gains. The bank's derivatives strategists suggest this behavior points to a potential "melt-up"—a rapid, overheated surge—leaving markets vulnerable to a painful correction if selling pressure resurfaces.
The latest Nasdaq 100 rally is clearly driven by FOMO—fear of missing out. "For us, this signals that the fear of missing gains is outweighing the fear of losses," said Nitin Saksena, head of equity derivatives research at Bank of America. "That's the psychological mindset many market participants are operating with right now."
Traders rapidly poured money into surging tech stocks after optimism over a de-escalation between the U.S. and Iran eased fears of a prolonged conflict. Semiconductor shares recorded their longest streak of consecutive gains on record, while the broader Nasdaq 100 climbed in 14 of 16 sessions—a pattern last seen in 2013—before pulling back slightly on Thursday.
To keep pace with the momentum, investors rushed to buy call options on tech stocks and the broader market at a record clip. The put-to-call volume ratio in the S&P 500 dropped below 1 for the first time since November 2019, according to data from Cboe Global Markets.
Periods where historical volatility rises alongside equities are rare but not unprecedented, typically occurring during recoveries from crisis lows, such as after the global financial crisis or during the Covid-19 pandemic. This time, however, the Nasdaq 100's trough was just 12% below its peak, while the S&P 500 lost less than 10%.
How long tech stocks will continue to fluctuate in tandem with volatility remains uncertain. Saksena, however, recommends buying call options on tech shares to capitalize on the risk-on phase while positioning for broader market swings. One potential strategy: a call spread on the Invesco QQQ Trust—the Nasdaq 100 ETF—targeting a move above $665 by the end of May, paired with a VIX call spread that profits if volatility climbs above 24 by May 19.
This interplay of rising prices and volatility isn't confined to U.S. markets, Saksena notes. He points to two recent examples: the rally in South Korean stocks, which has driven the Kospi index up more than 52% this year, and near-record volatility in precious metals at the start of 2025.
"We're seeing more of these price movements across markets and asset classes where developments decouple from fundamentals," he said. "Our overarching forecast for 2026 was that we'd see more bubble-like behavior spanning multiple markets."
