BofA's Hartnett Warns of Stagflation Risk as Diesel Prices, Yields and AI Productivity Concerns Converge
Michael Hartnett, chief investment strategist at Bank of America, warned in the latest Flow Show report released on September 14, 2026, that record diesel prices, a surge in 30-year Treasury yields to their highest level since 2007, and productivity concerns hidden behind the AI boom are together building a stagflation risk for autumn.
Hartnett highlighted the transportation ETF (IYT) as the most critical indicator to watch, saying that a break below the 200-day moving average support at 80 would confirm that the summer's "best time has passed" macro de-risking has turned into an autumn stagflation event. He also cautioned that "calm markets and hawkish policy are a breeding ground for volatility" and said it is not too late to hedge AI-bubble equity indices.
Fund flow data reflect a shift in market sentiment. U.S. stocks have seen average weekly inflows of just $7 billion over the past three weeks, down sharply from the $52 billion peak in July. U.S. equities recorded their largest three-week outflow since January 2026, totaling $14.2 billion.
Although the return of crude oil to $100 per barrel grabbed headlines, Hartnett pointed to diesel as a bigger concern, calling it the "stress epicenter of the real economy." Shipping, trucking, agriculture, construction and mining all rely heavily on diesel. Diesel crack spreads have hit a record $102 per barrel, while retail diesel prices have reached an all-time high of $6 per gallon.
On bond allocation, Hartnett noted that in the 2000-2019 era of "secular stagnation," bonds and stocks were negatively correlated, but the two asset classes are now positively correlated again, meaning the diversification protection of bonds is rapidly fading.
He also directly questioned the AI boom, saying that more than $1.5 trillion has been invested in AI over the past three years, yet evidence of productivity gains across the economy remains scarce, with total factor productivity falling below its long-term trend line. Another side effect is visible in valuations, as the free cash flow yield of the S&P 500 has been pushed to historic lows.
