BofA’s Hartnett says stay risk-off until yields fall below 4.5% and oil hits $70

Investors should stay risk-off until rate hikes end and financial conditions ease, with the dollar still pushing the wrong way, according to Bank of America strategists.

The team led by Michael Hartnett said they will stay risk-off until oil falls below $70 a barrel, which they said is already underway, and the 10-year Treasury yield drops below 4.5%, likely in December or January. A falling dollar is also required, but it is moving the other way for now, and the strategists expect it to peak in February or March. 

The strategists said the global tightening cycle, with more than 70 hikes from June 2026 to May 2027, ends at the April FOMC at the earliest. Markets are pricing Fed hikes in December, January and March, and the Fed last met its 2% inflation target in February 2021, BofA noted. 

The bank’s bull case is the S&P 500 above 8,000 on "insatiably buy-the-dip flows." The bear case is below 7,000, with a dollar spike, a liquidity shortage and central banks hiking into a slowdown.

In the bear case, strategists said, high-yield bonds, U.S. and emerging market stocks, energy, healthcare and mega-cap consumer stocks are most vulnerable.

Few investors are short because policymakers see stock markets as "too big to fail," the strategists said. Taiwan announced a $15 billion fund to support stocks, and Korean and Chinese authorities have made similar moves.

U.S. household equity wealth fell about $3 trillion in the past month but is still up about $9 trillion in 2026, they said. With consumption at 70% of GDP, a recession is hard to get while the wealthy feel so flush.

Many investors are emotionally bearish, but few are "physically" bearish, meaning short or underweight, the strategists said. A drop in "boom" expectations from 47% and a jump in cash from 3.9% to above 4.2% in the Nov. 17 fund manager survey would make sentiment less of a headwind.

On the politics front, eight Senate seats have flipped from Republican to Democratic, a swing seen only four times in 39 elections since 1950. This reinforces the "Anything But Bonds" trade, with investors unwilling to touch Treasuries until they yield 5.5% to 6.5%, the strategists said. 

In the latest flows, global equity funds drew $98.3 billion in the week to Nov. 11, the most since June, while bonds took in $300 million and gold $49 million. Crypto funds lost $1.9 billion and money market funds $17.9 billion.

U.S. equities drew $63.6 billion, also the most since June, in a sixth week of inflows. China stocks took in $2.1 billion, extending a record five-week buying streak to $88 billion.

Tech funds drew $8.9 billion, with $53.5 billion over five weeks, the most since July. Materials lost $2.4 billion, a three-week retreat of $8 billion, while energy had its first outflow in six weeks at $1.1 billion.

EM equities saw a seventh week of inflows at $14.7 billion and Japan a fifth at $4.2 billion. Europe inflows resumed at $400 million.

Investment-grade bonds saw an eighth week of inflows at $1 billion, and high-yield bonds a third at $400 million. Treasuries saw outflows resume at $600 million, while EM debt had a second week of outflows at $1.5 billion.