Bank of America Chief Investment Strategist Michael Hartnett advised investors to rotate out of the "Magnificent Seven" tech stocks. He recommended shifting capital into small-cap stocks. Hartnett argues that the market leadership of these tech giants faces "significant threats."
The threat stems from substantial capital expenditures (CapEx) on artificial intelligence. This CapEx could negatively affect their balance sheets. It also risks reducing their ability to execute large-scale stock buybacks.
The report suggests investors consider shifting towards out-of-favor assets as the U.S. midterm elections approach. Besides small-cap stocks, Hartnett recommends emerging market equities and real estate investment trusts (REITs). This advice reflects a potential rotation away from the dominant large-cap tech companies that have led the market since 2020.