BofA calls smid-cap stocks 'best play' ahead of U.S. midterms

The best bet ahead of the U.S. midterm election is shares of small- and mid-cap companies, while the appeal of tech giants is declining, according to strategists at BofA cited by Bloomberg.

Trump's “aggressive intervention” to reduce borrowing costs, energy prices, and health care, housing, and electricity bills is putting pressure on sectors such as energy, pharmaceuticals, banking, and Big Tech, a team of BofA analysts led by Michael Hartnett wrote.

“We are long Main Street, short Wall Street until Trump approval rating up on policy pivot to address affordability,” the bank said in a note. 

Investors this week sold off tech stocks amid concerns about disruption linked to AI, Bloomberg recalls. The Nasdaq 100 posted its biggest three-day decline since April 2025. The S&P 500 has lagged its equal-weight version by 4.2 percentage points since the start of 2026.

According to BofA, the flip from asset-light to asset-heavy business models suggests there is a “major threat” to the market leadership of the Magnificent Seven tech stocks. They note that AI capex spending from the biggest tech companies is estimated at about $670 billion, or 96% of cash flows, this year, versus just 40% in 2023. “No longer the best balance sheets, no longer the biggest stock buybacks,” Hartnett pointed out.

Market participants are now on the lookout for trades that stand to benefit from efforts by the Trump administration to lower the cost of living. A broad category of firms sensitive to improving growth prospects has also outperformed, Bloomberg added.

Hartnett’s preference for international equities since late 2024 has proved prescient as the U.S. underperformed global peers, Bloomberg concludes.