The euphoria in equity markets following the Federal Reserve’s interest-rate cut is stoking the risk of a bubble, making bonds and gold an attractive hedge against any recession or renewed inflation, according to Bank of America Corp.’s Michael Hartnett.

The strategist — who was largely bearish on stocks last year and has previously expressed his preference for bonds in 2024 — said that stocks are now pricing in more Fed easing and about 18% earnings growth for the S&P 500 by end-2025.

It doesn’t “get much better than that for risk, so investors are forced to chase” the rally, Hartnett wrote in a note. Still, he cautioned that “bubble risks” are returning and recommended buying the dip in bonds and gold.

The strategist also said stocks outside the US and commodities were a good way to play a possible soft economic landing, with the latter being an inflation hedge. International equities are cheaper and starting to outperform US peers, Hartnett said.

Global stocks rallied Thursday on optimism that the Fed’s 50-basis-point rate cut had kicked off an easing cycle in time to prevent a US recession. The S&P 500 Index is back at a record high after slipping from those levels in July. The technology-heavy Nasdaq 100 also surged 2.6% in its best day in more than a month.

A note of caution set in on Friday, however, as US stock futures edged lower and Europe’s benchmark index fell 0.7%.

A Bank of America survey conducted earlier this month found investor sentiment had improved on wagers of resilient economic growth. Still, a US recession and accelerating inflation were cited among the biggest tail risks for markets.

Hartnett had previously warned about the possibility of a bubble in tech stocks amid the frenzy around artificial intelligence.