Michael Hartnett, head of global strategy at Bank of America, warns that investors are likely to reduce risk exposure over the next three to four weeks. He cites several factors for this outlook, including real yields at 3%, persistent inflation, concerns about artificial intelligence valuations, and uncertainty surrounding the U.S. midterm elections.
Hartnett expects the Federal Reserve to raise interest rates in October, a view that contrasts with market pricing, which is increasingly anticipating a pause. He notes that higher yields and political uncertainty could pressure risk assets in the near term.
In terms of sector positioning, Hartnett favors small caps, real estate investment trusts, and consumer discretionary names. He advises avoiding additional technology exposure.