BlockBeats News, July 16th. Bank of America stated that the current U.S. stock market is showing another signal similar to the dot-com bubble era. The bank pointed out on Tuesday that the market is facing a new "shock risk" due to a recent concerning divergence: individual stock volatility is continuously rising while the overall market index volatility remains relatively stable, despite ongoing sector rotation within the tech stocks.

A report released by the Chicago Board Options Exchange (CBOE) in June showed that the gap between the S&P 500 Component Stock Volatility Index (VIXEQ) and the VIX Volatility Index has widened to a historical high. The VIXEQ is used to measure the individual stock volatility of the S&P 500 components, while the VIX is seen as the "fear index" measuring overall market volatility. As of Tuesday, the VIXEQ was around 50 points, up about 46% year-to-date; in comparison, the VIX was around 16 points, up only about 13% this year.

The Global Equity Derivatives Research team at Bank of America stated that a similar divergence had appeared on the eve of the dot-com bubble burst. Currently, the actual stock volatility index they track has risen to the level seen before the bubble burst that year. The analysts wrote, "The gap between individual stock and index volatility is approaching extreme levels seen during the dot-com bubble. The market shock risk is real."

They pointed out that the index volatility remains low, causing this historic gap to continue widening. If in the future not only stock prices rise but valuations also further enter the bubble territory, this deviation may even surpass the extreme levels seen during the dot-com bubble era. In addition, Bank of America also warned that the U.S. stock market is entering a seasonally weak phase. Historical data shows that the period from May to October is usually the weakest performing six months of the year for the U.S. stock market.