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BofA on Midterms & Markets: DEM Sweep Is the Big Risk-Off — Stay Long Commodities

Posted on by Eben@CANSLIM Research
Eben@CANSLIM Research's avatarEben@CANSLIM Research

BofA Securities strategists led by Michael Hartnett argue that a Democratic sweep in the November 2026 US midterms is the biggest risk-off event for markets into year-end, threatening a >10% slump in stocks, the US dollar and bond yields. In the latest Flow Show note, the team also says a Federal Reserve rate hike on 16 September alongside stalling payrolls would restore credibility and mark peak yields, keeping duration trades working. The house view remains long commodities and debasement hedges such as gold.

Key Takeaways

  • BofA’s Bull & Bear Indicator fell to 9.6 from 9.7, remaining in extreme bull territory after a “sell signal” was triggered on 26 May; since then the S&P 500 is up 2.0% and ACWI up 1.9%.
  • BofA strategist Michael Hartnett says a Democratic sweep is the “big risk-off” scenario, implying a >10% drop in US stocks, a weaker dollar and lower bond yields into year-end, with international stocks outperforming.
  • Polymarket now prices a DEM sweep at 50%, versus 35% for a GOP Senate and DEM House, and 10% for a GOP sweep.
  • Global equity funds took in just $2.8bn in the week, the smallest inflow in nine weeks, while tech funds saw a $1.5bn outflow, the biggest since June 2026.
  • Year-to-date, commodities lead all asset classes at +33.0%, ahead of gold at +4.3%, while bitcoin is down 7.0% and government bonds down 1.4%.

Lead Analysis: What BofA’s “Let them eat data” Report Says

In a report titled “The Flow Show — Let them eat data,” BofA Securities’ chief investment strategist Michael Hartnett and colleagues Anya Shelekhin, Myung-Jee Jung and Jessica Guo frame the coming weeks around three policy events: an ECB hike on 10 September priced at 99% probability, a Fed hike on 16 September at 53%, and a Bank of Japan hike on 18 September at 98%. The strategists argue central banks are hiking to restore credibility and ward off a surge in bond yields, which they call the biggest threat to the AI capex and K-shaped consumer booms.

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