BAML: There's one big difference between now and the 1999 tech bubble

The boom in stocks is not yet irrational, Bank of America Merrill Lynch strategists say.

A survey of large fund managers from the bank showed that about three-quarters of fund managers said tech stocks were either expensive or bubble-like. The survey was conducted from June 2-8, right before the tumble on Friday and Monday, and offers more insight into why investors dumped tech stocks.

Also, the share of investors who thought that stocks were overvalued jumped to a record high.

Unlike 1999, BAML said, investors are not reducing their cash holdings even though they think stocks are overvalued, suggesting that there's "no irrational exuberance" yet.

The 21% ascent this year through Thursday continues to prompt several comparisons between now and 1999, just before the height of when tech stocks boomed into a bubble and then crashed.

"Long Nasdaq" emerged as the trade that investors thought was the most crowded for a second straight month. One risk of crowding is that selling could be intensely volatile if, and possibly when, investors simultaneously decide it's time to trade the other way.

The Nasdaq 100, which is heavily comprised of tech stocks, dived for two days after a 21% ascent this year through Thursday. Traders cited the same concern that the survey highlighted: tech stocks had gone too high too quickly, and a pullback was in order. Also, a note from Goldman Sachs' Robert Boroujerdi on Friday provided some levelheadedness as it cautioned that low volatility among the most owned tech stocks was causing investors to underestimate their risks.

One vulnerability, BAML said, is that expectations for corporate profits are also elevated, increasing the chances of a sharp sell-off if earnings disappoint. This may not be a primary concern for investors after tech stocks on the S&P 500 saw 21% earnings growth in the first quarter.

The Federal Reserve could tame market speculation by raising interest rates at its meeting this week, the survey suggested. However, Michael Hartnett, the chief investment strategist at BAML, wrote that it may be a little too late for that.

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