• Bank of America (NYSE:BAC)'s Michael Hartnett remains risk-off until the 10-year Treasury yield falls below 4.5%, oil drops under $70 per barrel, and the US dollar weakens.
  • Despite caution, global equity funds saw their largest weekly inflow since June at $98.3 billion, highlighting a disconnect between sentiment and positioning.
  • Hartnett outlines a bull case for the S&P 500 above 8,000 and a bear case below 7,000, contingent on financial conditions and liquidity.

Stubborn Yields and Expensive Oil

Investors should stay defensive until key financial conditions ease, according to Bank of America's Michael Hartnett. In his latest strategy note, Hartnett reiterated his risk-off stance, citing three necessary conditions for turning bullish: a 10-year Treasury yield below 4.5%, oil below $70 per barrel, and a weaker US dollar. But as of November 13, those conditions remain unmet. The 10-year yield hovers above 5% following stronger-than-expected inflation data and expectations of further Federal Reserve tightening. Meanwhile, Brent crude trades around $95-96 per barrel and US crude near $88, well above Hartnett's threshold, despite his note suggesting a decline was "already underway." The dollar, too, sits near a 19-month high, supported by higher yields.

Hartnett's framework is not just about equities; it's about the broader cost of capital. "What institutional investors like us are really focused on is regulatory stability," said Andrea Valeri, Blackstone (NYSE:BX)'s country chairman for Italy, at a conference in Milan—a reminder that macro conditions shape investment decisions globally. For now, higher rates and a strong dollar are tightening financial conditions, making Hartnett's call for patience seem prudent.

Flows Don't Lie, but They Don't Confirm Bulls Either

Despite Hartnett's caution, investors are pouring money into equities. Global equity funds attracted $98.3 billion in the week ended November 11, the largest inflow since June, according to BofA. US equity funds took in $63.6 billion, their sixth straight weekly inflow, while technology funds drew $8.9 billion. Emerging market equity funds added $14.7 billion. Money-market funds, however, lost $17.9 billion, and cryptocurrency funds shed $1.9 billion. The data suggests investors are selectively risk-on, favoring equities over cash and crypto, even as they remain emotionally bearish.

Hartnett describes this as "emotionally bearish but not necessarily positioned defensively." In other words, pessimistic commentary hasn't translated into reduced exposure. That leaves portfolios vulnerable if his bear case materializes. The bear scenario, which sees the S&P 500 below 7,000, is tied to a dollar spike, liquidity shortages, and central banks raising rates into a slowdown. The bull case, above 8,000, relies on persistent dip-buying and easing financial conditions. Neither scenario has a probability attached, but the tension between flows and fundamentals is clear.

Geopolitics and Policy Add to the Mix

Oil's path is complicated by Middle East tensions. Attacks on Saudi energy infrastructure and disruption around the Strait of Hormuz have kept crude elevated, making Hartnett's sub-$70 condition harder to achieve. Meanwhile, the Federal Reserve's hawkish stance, with some expecting a half-point hike in December, continues to push yields higher. The ripple effects are global: India's rupee is under pressure from costlier oil and a strong dollar, while Japan's yen nears 160 per dollar, raising intervention risk. Even as stock-market support measures in Taiwan, South Korea, and China provide a backstop, Hartnett warns that policy support may not prevent losses.

Back in the US, Bank of America's own corporate performance reflects the challenging environment. Third-quarter revenue rose 3% to $30 billion, but net income fell to $6.9 billion from $8.3 billion a year earlier, hit by a $1.2 billion regulatory settlement over compliance issues. Adjusted earnings came in at $1.08 per share. Sales and trading revenue dropped 5%, and investment banking fees fell 11%, underscoring that stronger lending hasn't offset weaker capital markets activity. CEO Brian Moynihan and CFO Alastair Borthwick remain at the helm, but the regulatory charge serves as a reminder of the costs of heightened scrutiny.

For now, Hartnett's message is clear: don't chase the rally until bonds, oil, and the dollar confirm a more favorable backdrop. With yields above 5%, oil near $90, and the dollar strong, that confirmation is likely months away.