One of Wall Street’s biggest bulls drops overweight call on stocks ahead of midterms

Sharp swings in investor sentiment warrant a more cautious approach ahead of next week’s U.S. midterm elections, argues HSBC's Max Kettner, one of Wall Street’s most bullish strategists, in a new note to clients. On Monday, however, he tactically cut his stock allocation to “neutral” from maximum “overweight” for the first time since mid-March, Bloomberg reports.

Kettner cited investor concerns about tighter AI regulation in the event of a sweeping Democratic victory, along with the separate risk of a renewed escalation in the Iran war. He also reversed his position on developed-market government bonds, raising his allocation to “overweight.”

“Given the constant narrative bingo we just can’t have the same level of conviction any longer,” Kettner wrote. “Right now it feels as if we have to update our views at minimum on a weekly basis, if not even more.”

Kettner made a name for himself as one of the first strategists to call the current bull market in stocks. Now, he is concerned about the recent rise in longer-dated oil futures prices. “An immediate off-ramp seems hard to imagine,” he said.

Kettner remains bullish on equities for 2027. Credible progress toward resolving the Iran conflict in the coming months “would be an all-clear Goldilocks backdrop for virtually all asset classes,” he reckons. Stronger-than-expected free cash flow from the U.S. hyperscalers leading the AI infrastructure buildout, along with a more dovish Fed, could also help stocks extend their gains, Kettner argues.

Some other strategists share his concerns, Bloomberg notes. BofA strategist Michael Hartnett believes investors’ retreat from risk, so far most evident in the rotation into more defensive parts of the stock market, is likely to persist at least until mid-November. Morgan Stanley strategist Michael Wilson, meanwhile, said the midterms should serve as “a clearing event”: stocks could resume their climb once the election risk is out of the way.

Investors have been selling tech and AI stocks over the last two weeks amid concerns about massive AI spending and the sector's rising debt. As of the Friday close, the tech-heavy Nasdaq Composite had fallen 6.2% from its all-time high set on October 6. Market sentiment improved on Monday, however, after Anthropic publicly filed for an IPO in November. The S&P 500 rose almost 1% in Monday’s trading, while the Nasdaq Composite gained more than 1.2%, led by tech companies and chipmakers.