BofA Global Research22 October 2026

The Flow Show

Enter the Dragon

Scores on the Doors: oil 72.7%, US stocks 11.9%, global stocks 8.7%, US dollar 3.4%, cash 3.0%, HY bonds -0.9%, IG -2.2%, govt bonds -3.0%, gold -6.9%, bitcoin -7.1% YTD.

Michael Hartnett · Anya Shelekhin · Myung-Jee Jung · Jessica Guo下载原始 PDF

Zeitgeist: "Worst thing that could happen to this bull move in Treasuries is a recession."

Zeitgeist: "If I bought a cemetery, people would stop dying," client on being long China.

The Biggest Picture: China stocks (CSI 300) -20% since June led by tech (-41% - Chart 3); stocks down, yields down (record low 1.6%), as currency appreciates (CNYUSD 4-year high) classic deflation combo...consumer/investor buyer strike as China property bleeds (Chart 4); global EPS risk is China exports deflation (exports up 36% YoY, high-tech exports up 63% YoY – Chart 2).

Tale of the Tape: US mid cap MDY above $666, small cap IJR >$137, global financials IXG >$125 says macro fine, Oct risk-off just tech de-rating in tightening cycle, NDX holds 28k; but growth “tells” breakdown with tech (MAGS <$70, TSM <$400) EPS downward revisions, allocation to tech/stocks too high (investors most OW tech since Aug’20 in BofA Oct FMS); note new all-time highs in BRK...value>growth rotation.

The Price is Right: secular contrarian would be adding bonds...negative long-run returns great entry points for stocks in ‘39, ‘74, ’09, for commodities in ‘33, ‘18; in ’26 US Treasury long-run returns worst in past 100 years (Chart 5); "sell hubris, buy humiliation", we add to "peak yield" plays, e.g., small cap, REITs, utilities, consumer discretionary (note capitulatory outflows from utility & discretionary funds this week, 2nd largest on record).

EPS risk is China exports deflation (high-tech exports up 63% YoY)

Weekly Flows: $55.6bn to stocks, $28.8bn to cash, $12.1bn to bonds, $2.6bn to gold, $0.2bn to crypto.

Flows to Know

Treasuries: $5.4bn inflow, 17th week of inflows,
Japan equities: $6.0bn inflow, largest since Apr’26,
China equities: $17.0bn inflow, largest since Jul’26
Korea equities: $5.8bn inflow, largest since Jul’26,
Tech: $18.8bn inflow, largest since Jul’26 (Chart 13),
Consumer: $2.1bn outflow, largest since Feb’14 (2nd largest ever - Chart 14),
Utilities: $1.6bn outflow, largest since Mar’15 (2nd largest ever),
Energy: $1.1bn inflow, largest since Apr’26.

BofA Private Clients: $4.6tn AUM…65.9% stocks, 17.4% bonds, 9.4% cash; equity ETF share count rose 0.3% in past week, up 8.3% YTD; in past 4 weeks, private clients buying municipal bond, industrials, healthcare ETFs, and selling staples, EM debt, consumer discretionary ETFs.

BofA Bull & Bear Indicator: dips to 7.2 from 7.4 driven by weak global stock index breadth, bearish hedge fund positioning in oil & S&P 500 futures, wider junk bond spreads, partially offset by strong equity inflows; Bull & Bear Indicator in neutral territory in autumn after "extreme bull" readings all summer; "old" Bull & Bear Indicator up to 5.3 from 5.1 last week (see BofA Bull & Bear Indicator report).

BofA Breadth Rule: net 30% of global equity market indices currently "oversold" (trading below 50-day & 200-day moving averages); faithful contrarian “buy” signal triggered when net 88% markets trading <50dma/200dma (needs US, Taiwan, Brazil equity indices to fall 5-10% from current levels).

Events, dear boy, events

Oct 25th: Brazil election (Polymarket odds 78% Bolsonaro, 22% Lula, per Bloomberg),
Oct 27th: Israel election (48% Eizenkot, 28% Netanyahu),
Oct 28th: FOMC (7% prob of hike...consensus thinks no hikes = steeper yield curve),
Oct 28th: UK budget (must keep UK 30-year gilt yield <6%), MSFT/GOOG earnings (must keep MAGS >$70),
Oct 29th: ECB (1% hike prob...watch France-Germany 180bps bond spread – Chart 6),
Oct 30th: BoJ (3% prob of hike...JPY 160 remains key level),
Nov 2nd: US ISM (needs to rise >56/57 to corroborate "boom" narrative),
Nov 3rd: US midterms (Polymarket odds now 68% DEM sweep vs. 28% DEM House/GOP Senate, per Bloomberg),
Nov 18th: APEC summit Shenzhen (Xi, Trump, Putin all attending).

View: we stay tactically risk-off until mid-Nov, expect down-in-yields (GT30 toward 5%), down-in-stocks, down-in US dollar (DXY dips below 100) trade until a. midterm DEM sweep fully priced-in (DEM sweep EPS -ve...end of lower tax/regulation regime + Trump less able to coerce resources & capital into US-China AI priority), b. ECB/France govt stop rout in French bonds/reverse surge in France-Germany bond spread, c. AI capex cut or extreme equity issuance announcement (think Boeing 2024) causes peak in AI hyperscaler debt spreads; near-term upside risk = US announces Russia/Ukraine/Iran peace deals collapsing oil price by $10-20/bbl; near-term downside risk = hyperscaler bond spreads surge >200bps (Chart 9), investors deleverage on shadow banking credit event risk.

2027...bubble, breadth, bust: three scenarios for 2027 are AI bubble, Goldilocks bull broadening of stock markets, deflationary bust; case for bubble is AI = railroads (Chart 7), unprecedented US government backstop of AI (higher stocks/bonds = path to victory over China in AI war), Gen Z/Gen X structural buy-the-dip ethos; case for breadth is consensus forecasting 40bps drop in UST yields & 15% SPX EPS growth in ’27 and Goldilocks unlocks value in small/mid-caps (on 15x PE), SPX ex. AI (<20x PE); case for bust = railroads had three 30-50% drawdowns during late-1800s bull (Chart 8), bonds end booms/bubbles and credit tightening to cut $1.2tn AI hyperscaler ’27 capex forecast, no AI boom = no boom (unless oil down $30bbl, yields down -100-150bps, China stimulus)...downward revisions to ’27 forecasts of 5% US nominal GDP & 43% global tech EPS (after 92% in ’26 - Charts 10 & 11); next big entry point for risk assets comes when policy makers forced to ease financial conditions and once “fear” more visible...we think consensus conviction in bubble (50% of investors in BofA Oct FMS predicted "no landing") and breadth scenarios (40% predicted "soft landing") both too high, and fear of "hard landing" bust (6% in Oct FMS) too low.

Recent decline in China stocks led by tech

China property investment not reversing despite low yields

Buy humiliation…long-run UST returns worst in past 100yrs

Peak concentration of bubbles 40%, except railroads >60%

Railroads had three 30-50% drawdowns in late-1800s bull

Near-term downside risk = hyperscaler bond spreads surge

No AI boom risks downward revisions to tech EPS forecasts

No boom risks downward revisions to ’27 US GDP forecast

Watch Nov 3rd midterms…DEM sweep odds rising

$18.8bn inflow to tech funds, largest since Jul’26

2nd largest outflow from consumer funds on record

Asset Class Flows (Table 1)

Equities: $55.6bn inflow ($67.3bn to ETFs, $11.7bn from mutual funds)

Bonds: inflows past 78 weeks ($12.1bn)

Precious metals: inflows past 16 weeks ($2.6bn)

HY Bond outflows past 4 weeks ($0.5bn)

EM Debt inflows past 12 weeks ($4.0bn)

Munis inflows past 27 weeks ($0.7bn)

Govt/Tsy inflows past 17 weeks ($5.4bn)

TIPS inflows past 38 weeks ($0.2bn)

Bank loan inflows past 7 weeks ($1.5bn)

Equity Flows (Table 2) US: inflows past 3 weeks ($6.7bn)

Japan: inflows past 2 weeks ($6.0bn)

Europe: outflows past 2 weeks ($1.0bn)

EM: inflows past 4 weeks ($33.5bn)

By style: inflows US large cap ($4.5bn), US value ($1.9bn), outflows US growth ($2.6bn), US small cap ($7.5bn).

By sector: inflows tech ($18.8bn), energy ($0.9bn), hcare ($0.5bn), materials ($0.2bn), financials ($54mn); outflows real estate ($0.4bn), com svs ($0.5bn), utils ($1.6bn), consumer ($2.1bn).