Investors should avoid US stocks as expectations of a recession have become universal, according to Bank of America Corp.’s Michael Hartnett.

The strategist is specifically negative on technology shares, which have a higher concentration in the US than international markets, as they’re set to come under pressure from increased regulatory scrutiny and higher interest rates.

That’s already starting to materialize in investor flows. The $2.1 billion they pulled from US tech sector funds in the week through April 12 was the most since December 2018 and the third-largest redemption on record, according to the BofA note, which cited EPFR Global data.

Hartnett — who was correctly bearish on equities through last year, warning recession fears would fuel a stock exodus — instead prefers non-US shares. Cheaper international stocks that are tied to economic growth like European, Japanese and emerging-market banks will outperform expensive US growth stocks against a backdrop of elevated borrowing costs, he said.

Stocks have rallied this year as investors pin hopes on rate hikes nearing a peak and as they bet that any recession will prove mild. The coming earnings season provides the next test of how companies have managed headwinds like banking system stress, higher rates and slowing demand. Hartnett said all lead indicators point to a deeper profit recession than expected.

Goldman Sachs Group Inc.’s head of asset allocation research, Christian Mueller-Glissmann, also said the equity rally isn’t likely to last, especially in the US. “If the labor market remains strong and if the economy doesn’t have a recession, the pressure on Fed to actually to cut rates by as much as the market is pricing is quite low,” he said in an interview with Bloomberg Television.

BofA’s Hartnett sees a maximum return of 3% to 4% from credit and stocks over the medium-term. He recommends selling the S&P 500 in the 4,100 to 4,200 points range, which covers the benchmark’s Thursday closing level.

Among other notable flows in the week through Wednesday, $3.9 billion entered global equity funds, with those in the US seeing additions of $4.9 billion while European funds had redemptions of $1.1 billion. Meanwhile, Treasuries added $2.2 billion, taking inflows to $65 billion so far in 2023 in the strongest ever start to a year.

--With assistance from Allegra Catelli.

This article was provided by Bloomberg News.