Hartnett Says Chip Prices May Guide Tech’s Mid-November Return

Bank of America Securities strategist Michael Hartnett said semiconductor prices will help determine whether investors return to technology stocks around mid-November. The bank’s bull-bear gauge has ended a sell signal, but Hartnett remains defensive and is not adding to technology shares.

The gauge fell to 7.4 from 8.1, moving below the 8.0 threshold that marked a sell signal triggered May 26. Hartnett said the shift did not amount to a buy signal. He listed a Federal Reserve rate hike on Oct. 28 to restore credibility and easing concerns about artificial intelligence financing as conditions for taking on more risk. Neither condition had been met.

Market expectations for an October rate increase fell from above 50% to 14%. Investor positioning remained high: Bank of America private clients held a record 66.4% of their portfolios in stocks, while cash stood at a historic low of 9.3%. An October fund manager survey put investors’ technology overweight at its highest level since Aug. 2020. Weekly stock funds took in $64.4 billion as cash funds saw $53.1 billion in outflows.

Hartnett also pointed to strain in AI-related credit. CoreWeave bonds had entered distressed territory, while five-year credit default swap pricing implied about a 63% default probability. The AI credit market had also logged its weakest week of the year.

If semiconductor prices keep rising, Hartnett expects investors to return to technology stocks around mid-November and unwind short-technology, long-bond positions as 2027 approaches. If chip prices fall, he sees a sign of tighter AI credit and peaking capital-spending growth, which may favor bonds. In that scenario, income rather than asset-price gains could drive returns in 2027.

Hartnett is increasing exposure to small-cap stocks, real estate investment trusts and consumer discretionary shares. He remains overweight gold, commodities and emerging markets for the long term.