Bank of America: Tightening monetary policy will overshadow the AI boom and bring trouble to the stock market.

According to Dolphin Research APP, on Friday, strategists at Bank of America warned that investors who have been riding the wave of artificial intelligence enthusiasm and investing in technology stocks may face trouble in 2023 as central banks around the world continue to tighten monetary policies.

The team led by Michael Hartnett stated that the challenges the stock market will face in the second half of the year will outweigh the AI-driven frenzy. They pointed out that the "best correlation" found in the market over the past 15 years lies between central bank liquidity and technology stocks. Liquidity has surged from $5 trillion to $25 trillion, while the Nasdaq index has risen from 2,000 points to 16,000 points.

Currently, the Federal Reserve's balance sheet has shrunk by $3 trillion, but the Nasdaq still wants to reach new highs. They warned that Wall Street's "excessive liquidity" will be exhausted.

Analysts highlighted in a chart that investors should be cautious of the seven tech giants in the S&P 500 index, namely NVIDIA (NVDA.US), Apple (AAPL.US), Amazon (AMZN.US), Microsoft (MSFT.US), Google parent company Alphabet (GOOG.US, GOOGL.US), Tesla (TSLA.US), and Meta Platforms (META.US). From a technical perspective, these stocks may have formed a double top and could subsequently decline.

The AI frenzy sparked by chip manufacturer NVIDIA earlier this spring has propelled the stock market to a significant rise, although the level of participation remains low. In August, the stock market experienced a pullback due to the rise in US bond yields, and this week the yield on the 10-year US Treasury bond has reached its highest level since 2008.

In August, the S&P 500 index fell by 3.9%, but it has gained nearly 15% year-to-date. The tech-heavy Nasdaq Composite Index, which has a higher concentration of technology stocks, fell by 5.3% this month but is still up nearly 30% year-to-date. The Dow Jones Industrial Average, which is more focused on cyclical stocks, fell by 3.3% in August and has only gained 3.8% year-to-date.

On Friday, the three major indices rose, and the US stock market experienced significant volatility during the trading session. Earlier, Federal Reserve Chairman Powell warned that the central bank may need to raise interest rates further to balance the strong US economy and curb inflation, while assuring investors that monetary policy will proceed cautiously.