Bank of America is sounding the alarm on U.S. stocks, with two of its top strategists warning investors to be cautious heading into the second half of 2026.
Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, told Barron’s she is “neutral to negative” on equities at the index level. Her main concern is megacap technology stocks.
“I don’t see any reason to continue to buy Magnificent Seven or megacap tech stocks,” she said.
Subramanian says the AI build-out carries real risks. She compared it to a home renovation — it tends to take longer and cost more than expected.
Her bigger worry is what happens to the economy while companies build out AI infrastructure. The U.S. economy is 70% consumer-driven, and she sees AI quietly starting to reduce white-collar hiring.
She noted companies are already pausing on hiring college graduates — a group that has been a key driver of consumer spending for 30 years.
“A lot of the good news is priced into the market but not necessarily the bad,” she said.
Middle-income consumers, who drive the bulk of spending growth, are already trading down. Insurance and other big-ticket costs are rising faster for this group.
Subramanian also pointed out that long-term growth expectations for the S&P 500 are near levels not seen since the 1980s, which she called “a little odd.”
On the technical side, Bank of America’s Paul Ciana, Global Head of Technical Strategy, is also cautious.
Ciana warned that the S&P 500 could fall in three stages — a pattern called a “three-wave correction” — and drop as low as 6,850.
That would represent a drop of around 8.5% from current levels.
He flagged that if the index pushes to around 7,741, it could be a “bull trap” — a false breakout that quickly reverses lower.
Ciana says price action looks “stretched” and recommends investors take a defensive stance from July through September.
Bank of America reiterated its 2026 S&P 500 price target of 7,100 this week. That is the lowest target on Wall Street and implies about 5% downside from current levels.
The firm cited cooling liquidity, lower buybacks, and falling institutional demand as reasons for caution.
Despite the bearish outlook, Subramanian sees opportunity in other parts of the market. Every sector is seeing earnings growth this year, she said.
She favors large-cap value stocks — particularly in energy, financials, and manufacturing. These sectors still offer healthy dividends and buybacks.
She also sees semiconductors as a cleaner story than hyperscalers, since chip companies are receiving AI spending rather than making it.
If new equity issuances continue to pick up, along with rising long-term interest rates, she warns that could trigger a broader selloff.
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