Supercharged AI Bubble Or Epic Market Bust: BofA Derivative Desk's Dire 2025 Outlook

Now that permabearish Marko Kolanovic has been fired by JPMorgan - which waited to get its clients nice and short stocks, and nursing tremendous losses, before rugpulling them all and publishing a bullish outlook for 2025 - and Morgan Stanley's Mike Wilson learned his lesson, turning bullish after he was demoted at the start of the year for being too bearish for too long, the last remaining mega-bearish holdout on Wall Street is Bank of America's derivatives team headed by Benjamin Bowler, which year after year regales the bank's clients with prophecies of doom and gloom... and this year was no different.

In a note titled "Year Ahead 2025: The roaring 2020s?" (available to pro subs), the strategists look ahead with a sense of foreboding and warn that the largest risk in 2025 will be "misjudging the scope of a tech-bubble amplified by possibly the most radical US policy shift in 100yrs." They also note that 80s deregulation and tax cuts, and the 90s internet bubble drove record booms, while laissez-faire, speculation & innovation fueled the roaring 20s. But it was the ensuing ‘87, ‘00 & ‘29 crashes that taught us one thing: "Bigger the boom, bigger the bust."

Taking a closer look at the bank's thesis, they warns that as we enter 2025, the key risk is "not appreciating what a historic time this" is how much risk lies in the tails - both left an right tail. Adding to this is that by now we are already deep enough into the AI boom that equities will likely either accelerate towards a more bubble-like state or unwind their already significant gains, both outcomes resulting in sharp swings. Add to this the fact that the US will see the most radical public policy shift in a century with Trump’s sweeping win, and that markets remain historically fragile. Meanwhile, macro uncertainty remains elevated post-Covid and the 100 year high US debt levels only amplify the risks.