A defensive posture among investors is expected to linger well into November, according to Michael Hartnett of Bank of America Corp., offering further evidence of how concerns over artificial intelligence investments and the upcoming US midterm elections have weighed on equity markets.

"We stay tactically risk-off until mid-Nov," the strategist wrote in a note to clients on Friday. "Expect down-in-yields, down-in-stocks, down-in US dollar trade."

Hartnett noted that the market has yet to fully account for a potential Democratic sweep of both the House of Representatives and the Senate, which would be detrimental to earnings growth as it would bring an end to the prevailing low-tax, low-regulation environment.

Another development that could reignite risk appetite would be intervention by the European Central Bank or the French government to halt the selloff in French bond yields, Hartnett said. He also pointed out that a peak in AI hyperscaler debt spreads, which have recently unsettled markets, might be triggered by reductions in capital spending or an "extreme equity issuance announcement."

Investors continue to flock into AI-related sectors. Data from EPFR Global cited by the bank revealed the largest weekly inflows into technology stocks since July. A Bank of America survey conducted this month also indicated that global investors hold their highest exposure to tech since August 2020.

In recent days, however, they have also adopted a defensive stance, seeking refuge from a range of risks including rising oil prices and higher borrowing costs, along with fears that the AI trade is beginning to show bubble-like characteristics.

Billionaire Ken Griffin cautioned this week that investors are "almost certainly" in the midst of an AI bubble. An equal-weighted version of the S&P 500 Index — a gauge of market breadth — on Thursday recorded its best day since 2024 relative to the market-cap weighted S&P 500. Meanwhile, defensive consumer staple stocks are poised for their strongest month since 1998.