Midterm election market outbreak is imminent, Bank of America sees potential in small and medium-sized stocks as the new main line of U.S. stocks.

The Bank of America strategy team said that as the US midterm elections approach, the appeal of tech leaders is fading, making US mid- and small-cap stocks the best investment choice at the moment. Led by Michael Hartnett, the team pointed out that President Trump's "radical intervention" policies to lower energy, healthcare, credit, housing, and electricity prices are putting pressure on energy giants, pharmaceutical companies, banks, and large tech companies. This has made mid- and small-cap stocks the main beneficiaries of the "market outbreak" in the lead-up to the US midterm elections. In their report, they wrote: "Before Trump's approval rating rises due to the shift in policy towards social security issues, we will be long on real economy sectors and short on Wall Street financial sectors." Recently, investors are accelerating their exit from tech stocks due to concerns about the impact of artificial intelligence (AI) technology, and are instead looking for investment targets that can benefit from the Trump administration's measures to lower the cost of living. Meanwhile, companies sensitive to improved economic growth prospects have generally outperformed the broader market. This week, the Nasdaq 100 index recorded its largest three-day decline since April, falling by 4.6%. In addition, the S&P 500 index has underperformed its equal-weight index by 4.2 percentage points since the beginning of the year. Bank of America stated that corporate business models are shifting from "light assets" to "heavy assets," posing a "significant threat" to the market dominance of the so-called "Seven Tech Giants." The team pointed out that the AI capital spending of large tech companies is estimated to be around $670 billion this year, accounting for 96% of their cash flow, but by 2023, this ratio is expected to drop to 40%. They said, "The balance sheet advantage of these companies is no longer there, and the era of massive stock buybacks has come to an end." It is worth noting that Hartnett has been bullish on international stocks since the end of 2024, a judgment that has proven to be highly forward-looking - since then, US stocks have continued to underperform other global markets.