Bank of America strategists, headed by Michael Hartnett, advise investors to maintain a risk-off posture until several explicit market conditions are satisfied: crude oil below $70 a barrel, the U.S. 10-year Treasury yield declining beneath 4.5 percent, and a weakening dollar. The team says oil is already moving toward the required level, while yields are likely to fall to the 4.5 percent threshold in December or January. The dollar, they add, must also reverse course; for now it is moving the wrong way and is expected to peak in February or March.
The strategists argue that the current global tightening cycle - which they quantify as more than 70 interest-rate hikes between June 2026 and May 2027 - does not conclude before the April FOMC meeting at the earliest. Markets, by contrast, are pricing in Federal Reserve hikes in December, January and March. The strategists also note the Fed last achieved its 2 percent inflation target in February 2021.
Hartnett's team lays out distinct upside and downside scenarios for equities. In their bull case, the S&P 500 rises above 8,000 driven by persistent buy-the-dip flows. Their bear case places the S&P 500 below 7,000, a situation they associate with a sharp dollar spike, a liquidity shortage and central banks continuing to raise rates into an economic slowdown. Under the bear scenario, they identify several market segments as particularly vulnerable: high-yield bonds, U.S. and emerging market equities, energy, healthcare and mega-cap consumer stocks.
The strategists also observe a disconnect between investor sentiment and positioning. Many market participants report being emotionally bearish, yet relatively few are ‘‘physically’’ bearish - that is, short or underweight risk. The strategists point to policy actions as a factor limiting downside positions. For example, Taiwan announced a $15 billion fund to support its stock market, and authorities in Korea and China have taken comparable measures, which the strategists interpret as evidence that policymakers view equity markets as too important to let fail.
On household balance sheets, the bank notes that U.S. household equity wealth declined by about $3 trillion in the past month but remains roughly $9 trillion higher in 2026. Given consumption represents about 70 percent of GDP, the strategists conclude a recession is difficult to engineer while high-net-worth households feel financially comfortable.
The strategists reference the Nov. 17 fund manager survey to illustrate positioning and sentiment. They say a fall in ‘‘boom’’ expectations from 47 percent together with a rise in cash allocations from 3.9 percent to above 4.2 percent would reduce the headwind from bearish sentiment.
Political developments are part of the strategists' framework. They note eight Senate seats moved from Republican to Democratic control, a swing they say has occurred only four times in 39 comparable elections since 1950. This development, in their view, reinforces an ‘‘Anything But Bonds’’ trade, leaving investors reluctant to buy Treasuries until yields reach 5.5 to 6.5 percent.
Flow data released for the week to Nov. 11 underscore where cash has been moving. Global equity funds attracted $98.3 billion, the largest weekly inflow since June. Bond funds took in $300 million, while gold funds saw $49 million in inflows. Crypto funds experienced outflows of $1.9 billion and money market funds recorded withdrawals of $17.9 billion.
U.S. equities drew $63.6 billion over the same period, marking a sixth consecutive week of inflows and the strongest weekly take since June. China equity funds netted $2.1 billion, extending a record five-week buying streak to $88 billion. Technology funds added $8.9 billion in the week and $53.5 billion over five weeks, the largest five-week intake since July.
Sector-level movements included materials with outflows of $2.4 billion during the week and a three-week retreat totaling $8 billion. Energy registers its first outflow in six weeks at $1.1 billion. Emerging market equities saw a seventh straight week of inflows, totaling $14.7 billion, while Japan attracted $4.2 billion for the fifth consecutive week. European inflows resumed at $400 million.
Fixed income flows were mixed. Investment-grade corporate bonds recorded an eighth week of inflows at $1 billion, high-yield bonds saw a third week of inflows at $400 million, while Treasuries experienced resumed outflows of $600 million. Emerging market debt recorded a second consecutive week of outflows, at $1.5 billion.
Collectively, the strategists' guidance is structured around clearly stated market checkpoints rather than an open-ended calendar. Until oil, yields and the dollar move into the specified ranges, they recommend remaining cautious on risk assets, noting that both positioning and central bank behaviour will be important determinants of market direction.
Key points
- BofA strategists say stay risk-off until oil is under $70 a barrel, the 10-year Treasury yield falls below 4.5 percent and the dollar weakens.
- They see a bull S&P 500 case above 8,000 and a bear case below 7,000, with vulnerability in high-yield bonds, U.S. and EM stocks, energy, healthcare and mega-cap consumer stocks.
- Recent fund flows show strong equity inflows globally and in the U.S., continued tech fund buying, and mixed fixed-income flows with Treasuries seeing renewed outflows.
Risks and uncertainties
- Central banks continuing to hike into a slowdown could push markets into the strategists' bear case, impacting credit-sensitive sectors such as high-yield bonds and cyclical equities.
- Persistent dollar strength would impede the strategists' required weakening condition, which has implications for emerging markets and commodity-sensitive sectors like energy.
- Policy interventions in equity markets may limit downside positioning, potentially creating asymmetric risk if liquidity conditions deteriorate.