Stay risk-off as higher real yields and AI volatility threaten stocks: BofA Vahid Karaahmetovic Fri, October 16, 2026 at 6:54 AM EDT 3 min read ORCL +3.00% ^GSPC +0.33% ^NDX -0.05% NDX US500 Trade Oracle on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Investing.com -- Bank of America strategists say they "continue to lean risk-off" for the next three to four weeks, citing 3% real yields, geopolitical risks, midterm uncertainty, and weak price action in AI-linked stocks.
Still guessing which stocks will beat the market? Our AI portfolio updates monthly and is outperforming the S&P 500 by 118%. See this month's list »
Strategists led by Michael Hartnett said the Fed needs to hike on Oct. 28 and flagged oil and the U.S., Iran, Russia, and Ukraine situations as key risks, as well as the rising chance of a "wave-like" Democratic sweep in the midterms.
On the AI front, the strategists said spenders and lenders are under pressure. Private equity and business development company ETFs are back at their 2026 lows, and Oracle's (NYSE:ORCL) credit default swaps are a stress point.
The BofA Bull & Bear Indicator dropped sharply to 7.4 from 8.1, which ends the "sell signal" triggered on May 26. Since then, the S&P 500 is up 3%, the Nasdaq 100 is down 0.2% and high-yield bonds are down 4.1%.
Hartnett and his team expect an October Fed hike "to restore credibility," noting CPI has been above the Fed's 2% target for 66 consecutive months. They said a hike should push long-end Treasury yields down another 20 basis points in coming weeks, limiting downside for risk assets.
That holds as long as AI financing fears ease and the U.S. and China avoid new spats after the midterms, the strategists said. Xi and Trump are due to meet at the APEC summit in Shenzhen on Nov. 18 and at the G20 in Miami on Dec. 14.
The team said it is adding exposure to "peak yield" beneficiaries, including small caps, REITs and especially consumer discretionary. Investors are the most underweight consumer discretionary since July 2008, per BofA's October fund manager survey.
Unsure what to buy ahead of earnings? Our AI's recent pre-earnings calls delivered gains of +77% to +118% after results dropped. See this month's earnings picks »
On the flip side, strategists said they are not adding tech. The same survey shows investors the most overweight tech since August 2020, and an AI bubble in 2027 is now consensus.
Longer term, the analysts stay long gold, commodities and emerging markets (EM). They advise reducing secular underweight positions in bonds and China.
Looking into 2027, the strategists said markets will be driven by AI and urge investors to keep an eye on semiconductor prices. Fresh gains would be bullish, while a rollover would signal tighter AI credit and a peak in AI capex growth, they added.
BofA said about $64.5 billion went into global stock funds in the week through Oct. 14, on pace for a record $1.3 trillion this year. U.S. equities drew $39.1 billion, annualizing a record $636 billion.
Bonds took in $11.8 billion and gold $100 million, while $53.1 billion left cash funds and $600 million left crypto.
Treasuries saw a 16th straight weekly inflow at $3.6 billion, the longest streak since August 2024. Investment-grade bonds added $3.5 billion, and municipal bonds saw a 26th week of inflows at $4.5 billion. EM debt extended its inflow streak to 11 weeks at $800 million, while high-yield bonds saw a third week of outflows at $900 million.
EM equities drew $17.7 billion in a third week of inflows. Japan inflows resumed at $400 million, while Europe saw outflows of $1.5 billion.
All U.S. fund styles saw inflows, led by large cap at $32.5 billion. Tech led sector inflows at $10.7 billion, while financials and consumer funds had the biggest outflows, at $1.4 billion and $600 million.
Stay risk-off as higher real yields and AI volatility threaten stocks: BofA
Premarket movers: Tesla jumps; Strategy falls on MSCI index threat
UBS bullish on Bouygues as cash flow cushions French fiscal risks
