The Federal Reserve's interest rate cut may not necessarily be a good thing! Bank of America warns: the risk of a bubble is looming, it is recommended to buy bonds and gold.

GMTEightPP learned that Michael Hartnett, a strategist at Bank of America, warned that the excitement in the stock market following the rate cut by the Federal Reserve has increased the risk of a bubble, making bonds and gold attractive tools to hedge against economic downturn or rising inflation. The strategist, who was bearish on the US stock market last year and previously favored bonds for 2024, stated that the current market expects the Fed to further ease policy and for the earnings of S&P 500 index companies to grow by around 18% by the end of 2025. Hartnett stated, "Risk has not improved much, so investors are forced to chase the trend." However, he warned that the "bubble risk" is reemerging and advised to buy bonds and gold on dips. The strategist also mentioned that in the case of an economic soft landing, stocks outside the US and commodities are good targets, with the latter serving as a hedge against inflation. He stated that international stock prices are lower and starting to outperform US stocks. Global stock markets rose last Thursday, as the market optimistically viewed the 50 basis points rate cut by the Fed as timely opening a period of easing and avoiding a US economic recession. The S&P 500 index rebounded to historical highs after sliding from July levels. The tech-heavy Nasdaq 100 index also surged by 2.6%, marking its largest single-day gain in over a month. Following the rate cut by the Fed, the S&P 500 index reached a new all-time high. However, signs of caution appeared in the market on Friday. A survey conducted earlier this month by Bank of America found that investor confidence has improved slightly due to bets on economic growth rebounding. However, a US economic recession and accelerated inflation are considered the biggest tail risks in the market. Hartnett had previously warned about a potential bubble in tech stocks amid the AI boom.