Bank of America Warns of Stock Market Reversal Post-Midterms

Bank of America strategists warn that the U.S. stock market faces a significant risk of reversal following the November midterm elections. In a client note, the bank describes the upcoming election as a referendum on "populist capitalism vs populist socialism," suggesting that a Democratic sweep of Congress could trigger a market downturn.

Lead strategist Michael Hartnett advises investors to pivot from risky assets toward gold and defensive investments to hedge against economic dissatisfaction and a widening K-shaped economy. The bank further cautions that Treasury yields, currently around 4.67%, could spark a "vigilante event" that forces a fiscal policy U-turn and pops the AI bubble.

Other financial institutions have highlighted similar risks based on historical data. Oppenheimer & Co. noted a trend of third-quarter S&P 500 corrections during second-term midterm years, while Goldman Sachs reported that the median S&P 500 return from August to November in all midterm years since 1974 has been 0%.