BofA strategist says investors may turn risk-averse as Fed outlook and midterms collide

Investors are likely to become more risk-averse in the weeks ahead, with the Federal Reserve’s interest-rate path and political uncertainty from the US midterm election season combining to raise the odds of volatility, according to Michael Hartnett, global head of equity strategy at Bank of America.

In comments highlighted by Yahoo Finance, Hartnett framed the near-term market backdrop as one in which sheltering behavior could become the dominant theme. The strategist pointed to what he described as rising sensitivity to both interest-rate expectations and broader swings in risk appetite, suggesting investors may lean toward defensiveness rather than taking aggressive exposures.

The message also extends to the market’s continuing preoccupation with the so-called “AI trade,” a reference to equity and sector positioning built around companies perceived to benefit from artificial intelligence related spending. Hartnett indicated that the same factors driving volatility, including uncertainty around rates and event risk, could shape how investors express views on growth themes such as AI, rather than letting that trade run unchallenged.

Bank of America’s view, as characterized in the Yahoo Finance piece, centers on timing and investor psychology. With midterm elections approaching and the Fed still a key driver of the discount rate used to value future earnings, Hartnett’s concern appears to be less about any single data point and more about the potential for repeated shifts in market expectations that keep investors in a wait-and-see posture.

For investors, the practical consequence of that stance is that allocation decisions could become more selective. When risk is perceived as uneven, flows often favor liquid, higher-quality segments and away from areas that would be most exposed to abrupt repricing. In this context, Hartnett’s argument points to an environment where patience and hedging matter as much as forecasting.

Still, the public information available here is limited to the broad themes described in the Yahoo Finance report. The post does not provide specific asset-allocation recommendations, target price levels, or detailed probability estimates for rates, equity volatility, or election outcomes, so the exact composition of “avoid risk” positioning is not spelled out in the material provided.

What to watch next is whether markets respond by repricing interest-rate expectations and volatility indicators, and whether investors’ behavior around growth themes including AI remains stable or becomes more defensive. If Fed communication or upcoming macro data leads traders to revise their expectations quickly, Hartnett’s cautionary framework would be tested in real time through trading and positioning.