Bank of America’s Hartnett: Sell Signal Ends, Tech Stocks Return to Focus on Semiconductor Prices

On October 18, Bank of America strategist Michael Hartnett stated in the Flow Show report that the Bank of America bull-bear indicator dropped from 8.1 to 7.4, falling below the 8.0 threshold, thus ending the sell signal triggered on May 26. He emphasized that the end of the sell signal does not imply the emergence of a buy signal, and tactically, they still maintain a defensive stance without increasing positions in tech stocks. Hartnett pointed out that the prerequisites for returning to risk assets include the Federal Reserve raising interest rates on October 28 to restore credibility, and alleviating concerns over AI financing, neither of which has materialized yet. Market expectations for a Fed rate hike in October have dropped from over 50% to 14%, and the AI credit market has experienced its worst week of the year, with CoreWeave bonds falling into distress territory and the 5-year credit default swap (CDS) spreads implying about a 63% probability of default. The latest data shows that equity funds had a net inflow of $64.4 billion, while cash funds saw a net outflow of $53.1 billion, with Bank of America private clients' equity allocation reaching a record 66.4%. Hartnett views semiconductor prices as a key variable; if chip prices continue to rise, he expects investors to return to tech stocks by mid-November. Conversely, if semiconductor prices decline, it may indicate further tightening of AI credit, potentially favoring bond performance. Hartnett has chosen to increase positions in small-cap stocks, REITs, and consumer discretionary assets that benefit from peak yields, while maintaining a long-term overweight in gold, commodities, and emerging markets.

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