Bank of America - one of the largest banks in the United States - warned that the risks of a bubble in Wall Street in the second half of 2025 are increasing, noting that expectations for U.S. interest rate cuts and the tax-cutting policies adopted by President Donald Trump's administration are increasing the flow of money into the stock market, which warns of a bubble threatening U.S. stocks.
Bank of America analysts said that the risk of a speculative stock market bubble is increasing as expectations for the Federal Reserve to cut interest rates continue to rise.
In a memo released on Friday, Bank of America's chief investment strategist, Michael Hartnett, highlighted a shift he sees as imminent, which could lead to complications for investors and a crisis in the U.S. economy.
Geopolitical tensions and President Donald Trump's updates on tariffs have created headwinds for the markets, but as the ceasefire between Israel and Iran continues to hold, attention has shifted to the possibility of interest rate cuts in July 2025.
Federal Reserve Chairman Jerome Powell chose to keep interest rates steady at this month's meeting, but many senior officials since then have expressed their support for cutting them as soon as next month.
The Hartnett team sees that investors have begun to adapt to the greater likelihood of Powell changing his stance and cutting interest rates; furthermore, the 'Great Beautiful Trump Bill' is likely to lead to tax cuts for corporations and some families.
Hartnett stated, 'The risk of a second-half bubble is high as Trump and Powell shift from tariffs to tax cuts and lower interest rates to boost the dollar, which has decreased in value, potentially triggering a bubble that threatens U.S. stocks.