Bank of America Cites Four Risks Behind Its Cautious Stock Stance

Bank of America is keeping a defensive stance on stocks over the coming month as higher yields, oil prices, U.S. midterm uncertainty and weakness in AI-linked shares weigh on the outlook.

Bank of America strategist Michael Hartnett sees interest rates as a key pressure. Treasury yields eased this week but remain near multidecade highs, while inflation is still above the Fed’s 2% target. The consumer price index rose 3.7% in September from a year earlier, and the producer price index climbed 6.3%, its largest annual increase since 2022. The CPI has exceeded the target for 66 consecutive months.

Hartnett expects the Fed to raise rates on Oct. 28. He expects a hike to help restore the central bank’s credibility and lower long-term Treasury yields by an additional 20 basis points in the coming weeks. In his view, that could limit pressure on risk assets if concerns about AI financing ease. Interest-rate traders priced in more than a 77% chance of at least a quarter-point increase before year-end.

Hartnett also cited elevated oil prices amid conflicts in the Middle East and Ukraine, as well as the risk of a Democratic sweep in the Nov. 3 midterms. Traders put the odds of Democrats taking control of the House at 90%, and the chance of a Senate majority at 63%.

The fourth pressure is a pullback in AI-linked stocks amid concerns about companies taking on too much debt to expand AI networks. CoreWeave lost more than 22% during the week, while the VanEck Semiconductor ETF declined 9%.

The stance extends Bank of America’s earlier risk-off position for the next three to four weeks. Hartnett’s current outlook spans the Fed’s Oct. 28 decision and the Nov. 3 elections.