BlockBeats News, August 14th - Bank of America's Chief Investment Strategist Michael Hartnett's team released a report pointing out that the 2026 midterm elections could be a key turning point for the US stock market's AI rally. If the Republican Party retains the Senate and Texas Governor Greg Abbott is successfully re-elected, the market may see it as a signal of continued AI capital spending and data center expansion. The US stock market, especially the AI sector, is expected to strengthen further, potentially leading to a "bubble-like" market in 2027. Conversely, if the Democratic Party wins both the Senate and the Texas governorship, AI investments and risk assets face repricing, causing a significant drop of over 10% in the US stock market. The dollar and bond yields would also decline accordingly. Bank of America defines the Texas governor's election as a referendum on "cost of living and AI data centers" — Texas currently has 335 data centers with an additional 247 in planning.

The current bullish thesis still has fundamental support: S&P 500 second-quarter earnings growth reached 32%, AI capital spending is expected to exceed $1 trillion in 2027, the US stock market has risen by about 14% this year, and AI industry chain markets like South Korea have seen even higher gains. However, market optimism has become overly crowded. Bank of America's "Bull & Bear Indicator" remains in the sell zone. Private client stock allocation has risen to 66.4%, reaching a historical high, bond allocation has decreased to 17%, and cash allocation is only 9.4%, hitting a historical low.

Bank of America believes that a high allocation does not necessarily mean the bull market will end immediately, but it does make the market more sensitive to unexpected negative news. The bond market is the most significant potential constraint, with US government debt set to exceed $40 trillion. In the past 12 months, interest payments amounted to approximately $1.4 trillion. The 30-year US Treasury yield recently rose to 5.126%, hitting a 25-year high. A true end to the bull market usually requires excessive positions, overly optimistic profit expectations, and policy tightening to occur simultaneously. The first two conditions are in place, and the election outcome and interest rate trajectory will be critical variables in determining whether the bull market can transition from a strong uptrend to a euphoric bubble.