BofA Shifts to Mid-Cap: Election-Driven Rotation Outpaces Tech (BAC, MSFT)

U.S. Bank (BAC) strategists are pivoting to mid-cap stocks as midterm elections loom, with tech leaders’ appeal waning. Michael Hartnett’s team argues that President Trump’s stronger policy interventions to tamp inflation in energy, healthcare, banking, housing and utilities are pressuring large-cap sectors and shifting flows away from tech toward mid-cap companies sensitive to economic improvement. Investor sentiment reflects growing AI-related risk concerns, flowing toward more cyclical mid-cap issuances. Market data shows the Nasdaq 100 fell 4.6% in three days this week, its largest three-day drop since late 2023, while the S&P 500 lagged its equal-weight counterpart by 4.2 percentage points, signaling eroding large-cap leadership. The bank highlights a shift from light-to-heavy asset business models, challenging the “Seven Sisters”’ dominance. It estimates large tech firms spent $670B on AI CAPEX this year, or 96% of cash flows, up from 40% in 2023, with weaker balance sheets and回购 strength. Hartnett’s December 2024 rotation to global equities also outperformed U.S. peers recently.