BofA’s Hartnett Says Midcaps Are Best Play Ahead of US Midterms

Core Viewpoint - US small- and mid-cap stocks are favored ahead of midterm elections as larger technology stocks lose appeal due to President Trump's interventions aimed at reducing costs in various sectors [1][2]. Group 1: Market Trends - Investors are shifting away from technology stocks due to concerns over potential disruptions from artificial intelligence, leading to a focus on trades benefiting from the Trump administration's cost-lowering efforts [4]. - The Nasdaq 100 experienced its largest three-day drop since April, declining by 4.6%, while the S&P 500 has underperformed its equal-weighted counterpart by 4.2 percentage points since the beginning of the year [4]. Group 2: Sector Analysis - The transition from asset-light to asset-heavy business models indicates a significant threat to the market dominance of the so-called Magnificent Seven technology stocks [5]. - AI capital expenditure from major technology firms is projected to reach approximately $670 billion, representing 96% of their cash flows this year, a stark increase from 40% in 2023 [5].