One measure of U.S. technology stocks has just surpassed its dot-com bubble high, raising concerns for one widely followed strategist about unsustainable levels in U.S. stocks.
The MSCI USA Growth Index, whose top three holdings are Apple, Amazon.com and Facebook, has outperformed the MSCI World Value Index so much that the ratio of their performance topped this month a high last seen during the tech bubble in 2000, Bank of America Merrill Lynch's chief investment strategist, Michael Hartnett, said in a note Monday.
"There are nascent signs we are in the very early stages of an overshoot" in market speculation based on valuation, fund flows, and the relationship between stocks and bonds, Hartnett said in the report. "The longer it takes central banks to tighten, the greater the risk of tech & 'growth' stocks entering a speculative frenzy."
US growth stocks have surpassed "tech bubble" high vs. global value stocks
Source: BofA Merrill Lynch Global Investment Strategy
Technology stocks have surged 17 percent so far this year as the top performer in the S&P 500 and have also surpassed financials as the best performer since the U.S. presidential election.
Five industry heavyweights account for much of the S&P 500's latest run to record highs. Forty percent of the index's gains this year come from Apple, Google parent Alphabet, Amazon.com, Facebook and Microsoft, according to a Goldman Sachs note Friday.
Investor appetite for tech stocks remains strong. Fund flows into tech stocks this year are tracking for their strongest in at least 15 years and could soon account for about 25 percent of global assets under management, Hartnett pointed out in a separate note Thursday.
In fact, the Nasdaq 100 has closed above its 50-day moving average for 113 consecutive sessions, its longest streak since 2011 and the seventh longest on record going back to 1985, Jonathan Krinsky, chief market technician at MKM Partners, pointed out in a Sunday report.
But one week after such a streak ends, the Nasdaq 100 has always fallen with a median decline of 3.61 percent, Krinsky said.
BofAML has raised warnings signs about overspeculation in the market before.
In March, the firm's head of U.S. equity and quantitative strategy, Savita Subramanian, raised her forecast for the S&P 500 by 150 points to 2,450 on expectations that extreme optimism, typical to the end of a bull market, is taking hold.
To be sure, this time may be different.
The price-to-earnings ratio on the global MSCI tech sector is 18 times, far below the tech bubble peak of 50 times, Hartnett said.
Tech earnings per share are expected to grow 13 percent this year, better than the S&P overall, according to CFRA Research.
"In tech right now you have a combination of momentum and fundamentals," said Marc Chaikin, CEO of Chaikin Analytics. "I think now money is flowing towards where people think money will be six months down the road."
Even last Wednesday when the broader U.S. stock market fell in its worst day of 2017, retail investors' buying activity increased 15 percent, purchasing mostly tech stocks, data from the Robinhood trading app showed.
— CNBC's John Melloy and Tae Kim contributed to this report.