The rush into technology stocks is resembling the bubble of 1999, reflecting an assumption that the economy will perform strongly despite tighter monetary policy, according to Bank of America Corp. strategists.

While falling yields were pushing the Nasdaq higher in the fourth quarter, the script has now flipped to both rising over the past four weeks. This price action would typically only occur after a recession, such as in 2009 or the dot-com bubble around the turn of the century, BofA strategists led by Michael Hartnett wrote on a note.

Investors aren’t too bothered about whether the Federal Reserve cuts rate in March or May, he said. The market will view the Fed as bullish for asset prices until inflation picks up again, reducing the scale of rate cuts, or if unemployment rises, which would be a “big macro and market game-changer.”

The so-called Magnificent Seven technology stocks have led the Nasdaq 100 Index’s 54% surge last year amid expectations of imminent rate cuts, a solid economy and optimism about artificial intelligence. The rally has extended into 2024 as investors continue to bet on big tech, with stronger-than-expected results from Meta Platforms Inc. and Inc. likely to provide more momentum.

Federal Reserve Chair Jerome Powell this week pushed back on market bets for a rate cut in March on concerns that inflation remains higher than the central bank’s 2% target.

Hartnett notes that 75% of investors expect a soft landing and 20% a no-landing scenario. Yet, while a soft landing should support a broader range of equities, the Magnificent Seven accounted for 45% of the S&P 500’s return in January, reflecting a “leaning toward no landing/bubble,” he said.

Hartnett’s view on the rising dominance of tech stocks resembles a warning by JPMorgan Chase & Co. strategists earlier this week that the US equity market is increasingly drawing similarities with the dot-com bubble.

Meanwhile, equities continued to drive the week’s fund flows.

US stocks attracted about half of the $20.1 billion of inflows for stocks, with Chinese equities at $6.3 billion.

Separately, the BofA Bull & Bear Indicator, an investor sentiment gauge, surged to a two-and-a-half year high, but remained far from a contrarian sell signal, Hartnett said.

This article was provided by Bloomberg News.