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<ul class="summary-list"><li>The post-election rally has led stock exposure to jump to its highest level in 11 years, BofA says.</li><li>The bank's fund manager survey says US stocks will continue to rally, and are set up to be the best performing asset in 2025.</li></ul>Donald Trump's election win has sparked a <a target="_blank" href="https://markets.businessinsider.com/news/stocks/trump-election-win-stock-market-today-record-high-sp500-dow-2024-11?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">rally in US stocks</a>, pushing investors' equities exposure to jump to its highest level in 11 years.That bullishness is set to continue, too, according to a Bank of America survey of fund managers. The survey showed fund managers predict US equities will be the best-performing asset next year, fueled by the promise of pro-business policies under Trump.The survey showed a marked "surge in bulls," strategist Michael Hartnett said.Now, a net 28% of those investors expect the US economy to grow at a stronger pace in the next year. That's a stark shift from last month's survey, when 22% expected weaker growth.The survey participants, who manage a combined $503 billion in assets, say that apart from US stocks, global equities and gold will also perform well next year.Those who made their calls after the election also pointed overwhelmingly to the Russell 2000 index of smaller stocks as the best-performing index for next year.Small-cap stocks are expected to do well in a second Trump presidency due to their lack of international exposure, which will minimize risk from Trump's proposals for sweeping tariffs on imports. Those stocks have also seen inflows since the election, with the Russell 2000 surging almost 6% since Election Day. US stocks have extended their postelection rally into this week. Investors expect that Trump's proposed policies, like corporate tax cuts and less regulation, will be more business-friendly and boost earnings.The widespread rally has sparked massive inflows into Trump trades like <a target="_blank" href="https://markets.businessinsider.com/news/currencies/bitcoin-record-price-outlook-crypto-trump-election-digital-assets-altcoins-2024-11?_gl=1*3p5vvo*_ga*MTY3OTgyNjg0MS4xNzIxMDE2MDM2*_ga_E21CV80ZCZ*MTczMTQxOTczNy4zOTIuMS4xNzMxNDE5NzQ0LjUzLjAuMA..">bitcoin</a> and <a target="_blank" href="https://markets.businessinsider.com/news/stocks/tesla-stock-price-trillion-valuation-donald-trump-election-win-tsla-2024-11?_gl=1*jyqhh7*_ga*MTY3OTgyNjg0MS4xNzIxMDE2MDM2*_ga_E21CV80ZCZ*MTczMTQxOTczNy4zOTIuMS4xNzMxNDE5NzcxLjI2LjAuMA..">Tesla</a>, as well as shares of banks that are expected to benefit from his policies.The S&amp;P 500 and the Dow Jones Industrial Average have hit record highs since the election.

Stock exposure hits 11-year high as investors expect US equities to be the top-performing asset in 2025, BofA survey says

<ul class="summary-list"><li>David Kostin is seeing similarities to the dot-com bubble as "superstar" firms boost the market.</li><li>Record-high market concentration will lead to a decade of weak returns, the strategist said.</li></ul>David Kostin is no stranger to the ups and downs of the stock market.The Goldman Sachs chief US equity strategist has seen multiple economic boom-bust cycles during his more than 35 years on Wall Street. And right now, Kostin sees two striking similarities between today's market and the dot-com bubble — conditions that could lead to a decade of lackluster returns for the S&amp;P 500 just as they did after 2000, he told Business Insider in an exclusive interview.First, market concentration is at an all-time high, meaning that the performance of the S&amp;P 500 is disproportionately driven by just a few stocks. This is due to the rise of what Kostin calls "superstar" firms with economies of scale, such as the Big Tech companies whose valuations have spiked this year thanks to the development of AI.Today, the 10 largest stocks in the S&amp;P 500 make up 36% of the entire index by market capitalization."We're at a level of concentration in the US market today that we haven't really seen since the tech bubble. It's even more concentrated than it was 20 years ago," Kostin said.In fact, the US equity market is at its highest concentration in 100 years.<div type="image" title="Goldman Sachs US equity market concentration" height="642" width="689" msid="114979384" hostid="261" sizebytes="44834"></div>Risks become less diversified, and volatility increases in a concentrated market, which is why Kostin is skeptical that the largest companies in the index will maintain their premium valuations going forward.Second, Kostin sees a large valuation gap between the top 10 stocks and the rest of the index.The largest 10 stocks in the index trade with a median price-to-earnings ratio of 31. Meanwhile, the other 490 stocks have a median P/E ratio of just 19.<div type="image" title="Goldman Sachs chart showing 10 largest stocks trading at 31x P/E compared to 19x for the rest of the market." height="730" width="882" msid="114979385" hostid="261" sizebytes="38416"></div>That means for the top stocks, the earnings yield — a metric measuring the expected return on investment, calculated by taking the inverse of the P/E ratio — is lower compared to the rest of the market. A stock with a P/E ratio of 31 has an earnings yield of 3.22%, meaning that every dollar invested in the stock would generate earnings per share of 3.2 cents. A stock with P/E ratio of 19 has an earnings yield of 5.26%, meaning that investors are receiving more earnings for every dollar they put in.This gap between the top S&amp;P 500 performers and the rest of the index hasn't occurred since the dot-com bubble."The valuation of the largest stocks in the market have a negative risk premium to bonds, and that has not happened for 20 years," Kostin added.That means the top 10 stocks in the index actually have a negative return in excess of the risk-free <a target="_blank" href="https://markets.businessinsider.com/bonds">10-year Treasury</a> yields. The 10-year has a nominal yield of 4.28% compared to the top 10's 3.22%, which is approximately a 1% negative risk premium.<h2 id="3daaf9d0-47d8-48dc-b7f5-64d833e2a83c">The next decade</h2>The ultra-high concentrations in the market today happened over several years, so Kostin isn't expecting the market to broaden overnight. But the current disjunction simply isn't sustainable for the long term, he said. Higher concentration is typically associated with increased volatility in the near term and <a target="_blank" href="https://www.businessinsider.com/stock-market-crash-why-sp500-decade-weak-returns-goldman-jpmorgan-2024-11">lower returns</a> over long time horizons.That's why Kostin predicts that the S&amp;P 500 will generate a 3% annualized nominal total return through 2034 — well below the index's long-term average of 11%."The S&amp;P 500 has roughly a 72% probability of trailing bonds and a 33% likelihood of lagging inflation through 2034," Kostin and his team wrote in a recent note.<div type="image" title="Goldman Sachs is predicting a decade of low returns." height="442" width="701" msid="114979383" hostid="261" sizebytes="27106"></div>Superstar firms propelled the S&amp;P 500 to new highs in 2024, but maintaining that level of growth in the future will be difficult, especially when valuations are already so elevated, according to Kostin."The expectation of revenue growth for these companies is 20%, and the stocks trade at high multiples reflecting that growth rate. So the risk is ultimately, can the companies deliver on these extremely high levels?" Kostin said. "The evidence is strongly in support of the fact that growth rates for high revenue growth companies tend to fade," he added.Today's valuations price in double-digit growth, but that's not a realistic outcome, in Kostin's view. When sales and earnings growth for the biggest companies eventually cool, these valuations will come down, and the overall index will decelerate as well.Kostin pointed to companies like Intel, Microsoft, and Cisco, which saw incredible runups as investors priced in aggressive revenue expectations during the dot-com heyday. When these companies failed to meet these lofty expectations, valuation multiples compressed significantly.Although Kostin is predicting a decade of lower-than-average growth for the S&amp;P 500, he's still optimistic about the overall state of the economy as the unemployment rate is holding steady at 4.1% and the US consumer is strong.While the overall market is shaping up to see lower-than-expected returns for the next decade, that doesn't mean there aren't pockets of opportunity for investors to seek <a target="_blank" href="https://www.businessinsider.com/how-to-beat-stock-market-returns-next-decade-goldman-sachs-2024-10">higher returns</a>. As the gap between the largest stocks and the rest of the market subsides going forward, the typical stock is positioned to perform better than the current market leaders.For that reason, Kostin is expecting the S&amp;P 500 equal-weight SPW index to outperform the market-cap-weighted S&amp;P 500.Kostin also identified mid-cap stocks as a big beneficiary of a broadening market. In his view, <a target="_blank" href="https://www.businessinsider.com/next-big-stocks-to-buy-unflashy-mid-caps-investing-parnassus-2024-10">mid-cap stocks</a> are much more reasonably valued than the overall S&amp;P 500 and have historically performed well in a rate-cutting environment, making them a compelling investment opportunity.

Goldman's top equity strategist tells BI 2 similarities between today's market and the dot-com bubble — and what it means for your portfolio

<ul class="summary-list"><li>The stock market could jump as much as 10% by the year-end, Citi's stock-trading strategy head said.</li><li>Stuart Kaiser told Bloomberg TV that the uber-bull case is now "a plausible scenario."</li></ul>Wall Street is forecasting S&amp;P 500 highs that <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-bmo-raises-year-end-sp500-price-target-2024-9">reach past the 6,000 threshold</a>. This bullishness may be well earned, Citi's Stuart Kaiser said."The uber-bull case, I think, for all of this year has been: you avoid a recession, you get insurance cuts, right? And that is now a plausible scenario," the firm's head of US equity-trading strategy told <a target="_blank" href="https://www.youtube.com/watch?v=4dM23uGmjuI">Bloomberg TV</a> on Tuesday.If this is achieved, stocks can surge another 5% to 10% by the end of this year, Kaiser said.So far, the second half of those conditions have been met. This month, the Federal Reserve finally started reducing interest rates, in a move meant to prevent a future economic slump.This precautionary "insurance" cut — amounting to a 50-basis-point reduction to the federal funds rate — was embraced by stock investors, and indexes have since notched new record highs.To Kaiser's point, this will continue as long as a recession does not materialize. But though the Fed emphasized that it was not forecasting a looming downturn during its latest policy meeting, it all hinges on incoming labor market data, he noted.Since August, slipping employment conditions have been the core driver of slowdown fears. Investors will need to see labor figures remain intact in upcoming monthly data, or else recession outlooks could become increasingly valid."Our view is risk reward is tough because it's really dependent on month-to-month," Kaiser noted, warning that recessionary prints would easily upend any Fed efforts to support the market.Other banks are also <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-most-important-daysstock-market-between-now-and-election-2024-9?_gl=1*i7qn1n*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTcyNzE3OTAwMi42NDQuMC4xNzI3MTc5MDAyLjYwLjAuMA..&amp;utm_medium=ingest&amp;utm_source=markets">eyeing jobs data</a>.According to Morgan Stanley, investors can celebrate if unemployment falls below 4.1% and non-farm payrolls reach over 150,000. This will be the <a target="_blank" href="https://markets.businessinsider.com/news/stocks/best-case-scenario-for-stock-market-outlook-fourth-quarter-ms-2024-9">best-case scenario for the market</a>, keeping momentum going.Otherwise, trading should prepare for the worst if unemployment climbs above 4.3% and payrolls slide under 100,000."The Fed puts not going to protect you if you get that kind of data, and that's why we think the risk reward is kind of a little bit off right now," Kaiser said.

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