August 15, Michael Hartnett, BofA Securities’ chief strategist, said in a recent report that in the current AI bubble environment, the optimal investment strategy is to go long both AI tech leaders and neglected “loser” assets that the market has long overlooked, in order to capture two-way returns during the final blow-off stage of the nominal GDP bubble, and to recommend shorting AI bonds. BofA’s bull-bear indicator edged down slightly from 9.7 to 9.3. It remains in an extreme bullish zone and continues to hold a “sell” signal, but global equities have still risen since the signal was issued in May. The report emphasized that capital is structurally flowing into gold and commodities, while tech stocks saw their largest single-week outflow in seven weeks. Private clients’ equity allocation has reached a historical high.
Hartnett believes that historical bubble patterns show that in the run-up to a bubble top, emerging markets or oversold cyclical assets often benefit from spillover effects. In the current setup, the most likely path to replicate this pattern is the consumer sector. Meanwhile, more than $1 trillion in AI capital expenditures combined with negative cash flow will create significant issuance pressure for related bonds. At the same time, BofA keeps its broad-asset framework of “avoid bonds, avoid the dollar, fully allocate to AI,” and points out three potential constraints that could suppress further upside in the bull market: surging bond yields, a shift in voter sentiment toward caution, and positioning that is generally already too long. Private client data shows that equity allocation has risen to a historical high of 66.4%. The shares of cash and bonds have fallen to the lowest levels on record and the lowest since 2022, respectively.
Against the backdrop of pressure as the size of U.S. Treasuries nears $4 trillion and debt-servicing costs continue to climb, BofA views the yield trajectory as the biggest variable and warns that intervention in the U.S. dollar–Japanese yen exchange rate has sent a signal that it is not desired for 10-year U.S. Treasury yields to break above 5%. Under the “avoid the dollar” theme, the report recommends going long gold as a hedge and also favors the Hong Kong real estate sector, where valuations are only about 12 times and where price levels are roughly in line with those from 30 years ago. Looking ahead, the November U.S. midterm elections are listed as a key political variable: if Republicans hold the Senate and the Texas governor is re-elected, AI risk assets could accelerate toward a peak in 2027; otherwise, it could trigger major adjustments in equities, the dollar, and yields.

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