Bank of America's top investment strategist Michael Hartnett is urging investors to flip the script, backing Main Street over global elites as cooling inflation, AI disruption and political pressure reshape markets ahead of U.S. midterms.

The expert laid out a bold call in his latest Flow Show report: Investors should "stay long Detroit, short Davos" — favoring U.S. small and mid‑caps, banks, REITs, emerging markets, and international equities over the so‑called Magnificent 7 and other Big Tech giants.

Main Street vs. Davos: A Quiet Rotation Is Already Underway

Hartnett's core message is that markets are beginning to price a political and economic pivot toward affordability.

That shift matters.

Assets punished during the big bond bear market of the early 2020s are quietly outperforming the elite "Davos" trades that dominated portfolios for years.

That divergence may look modest, but historically it's how regime changes begin: slowly, then suddenly.

The expert indicates that a series of macroeconomic and political shifts are underpinning this rotation. With inflation surprises tilting to the downside and artificial intelligence (AI) adoption cooling the labor market, affordability pressures — on energy, healthcare, credit, housing, and electricity — have moved to the political foreground.

Hartnett said the team stays long Main Street and short Wall Street until Trump's approval rating rises on affordability-focused policy.

Mag 7 Now Have A Balance Sheet Problem

A key risk sits with the former market leaders as Hartnett warns of a flip from asset-light to asset-heavy business models.

AI hyperscalers are expected to spend $670 billion on capex in 2026, consuming 96% of their cash flow, compared with roughly $150 billion or 40% of their cash in 2023.

That changes everything.

The leaders of the 2020s — the Magnificent Seven — are no longer the cleanest balance sheets in the market.

They're no longer the biggest buyback engines.

According to Hartnett, Wall Street isn't abandoning AI — it's rotating from AI spenders to AI beneficiaries, from services to manufacturing, from hype to cash flow.

A Familiar Pattern: Big Events, Big Market Regime Shifts

Hartnett sees a historical pattern where major global events trigger long-term shifts in market leadership.

From gold after Bretton Woods to bonds in the Volcker era, U.S. stocks during globalization, commodities after China's WTO entry, and megacap tech after COVID, leadership has consistently rotated following big events.

He sees 2025 as the next inflection point, marking a shift away from U.S. exceptionalism toward global rebalancing.

In this new cycle, Hartnett expects U.S. small and mid-cap stocks, financials, regional banks, REITs, and real assets to outperform, alongside international equities, China's consumer sector, and emerging market commodity producers.

Conversely, he warns that high-valuation, asset-light Big Tech leaders face rising risk as capital rotates toward more traditional, income-generating parts of the economy.

Photo: Shutterstock