Bank of America Strategists: Global Risk Aversion Likely to Persist Until Mid-November, Short-Term Risk Unwinding Not Yet Complete

U.S. Bank strategist Michael Hartnett believes current global market risk aversion may persist until mid-November. Until three uncertainties—AI financing risks, French bond market pressure, and U.S. midterm elections—resolve, he remains tactically cautious toward risk assets. Hartnett wrote in a Friday client note that BofA will "maintain tactical risk aversion through mid-November" and forecasts a concurrent mix of "falling yields, declining stocks, and a weaker dollar" during this period. A key signal that could meaningfully improve risk sentiment, Hartnett says, is the peak of credit spreads for AI hyperscale cloud providers. He argues that either large AI firms voluntarily cutting capital expenditures or reducing debt pressure via large-scale equity financing could act as a catalyst for credit spreads to peak. Measures from the European Central Bank or French government that reverse the sell-off of French government bonds would help restore global investors’ risk appetite, Hartnett adds. He also notes the market has not fully priced in the scenario where Democrats win both the House and Senate. If that outcome occurs, the Trump administration’s current low-tax, light-regulation environment could face constraints, which would be negative for corporate earnings expectations. Hartnett’s core view is not that U.S. stocks have entered a long-term bear market, but that short-term risk unwinding is not yet complete. In his view, three key signals will confirm a true recovery in risk appetite: peak AI credit spreads, a credible policy turnaround in the French bond market, and the full repricing of U.S. midterm election risks.