Bank of America: US stock market shows warning signals similar to those during the dot-com bubble, with shock risks building up.

Bank of America (BofA) says the U.S. stock market is showing another signal similar to that during the dot-com bubble era. On Tuesday, the bank noted the market faces a new "shock risk" due to a concerning divergence in recent trading: individual stock volatility is rising, while overall market index volatility remains relatively stable, even as capital continues rotating within tech stocks. A June report from the Chicago Board Options Exchange (CBOE) shows the gap between the S&P 500 Individual Equity Volatility Index (VIXEQ) and the VIX volatility index has widened to an all-time high. VIXEQ measures volatility of individual S&P 500 stocks, while the VIX is widely regarded as the "fear index" for overall market volatility. As of Tuesday, VIXEQ stood at around 50 points, up roughly 46% year-to-date; by contrast, the VIX was at about 16 points, with a year-to-date gain of only ~13%. BofA’s Global Equity Derivatives Research Team stated a similar divergence occurred just before the dot-com bubble burst. Currently, the team’s tracked individual stock realized volatility metric has rebounded to levels seen before that bubble’s collapse. The analysts wrote: "The gap between individual stock and index volatility is approaching the extreme levels of the dot-com bubble. The market’s shock risk is real." They pointed out that index volatility remains low, fueling the continued widening of this historic divergence. If in the future, not only stock prices rise but valuations also further enter bubble territory, this divergence could even exceed the dot-com era’s extreme levels. Additionally, BofA warned U.S. stocks are entering a seasonally weak period. Historical data shows May through October is typically the six weakest months for U.S. equities annually.