Bank of America has issued a cautionary note to investors, advising them to steer clear of increasing their exposure to the tech sector due to ongoing market volatility and election-related policy uncertainty.

What Happened: Bank of America has issued a warning to investors, advising them to avoid increasing their exposure to the tech sector. The firm cited ongoing market volatility and election-related policy uncertainty as key factors, reported Business Insider on Monday.

"Don't buy the tech dip," analysts said. "We remain underweight Information Technology despite arguments that it has gotten so beaten up."

On Monday, analysts from Bank of America recommended that investors focus on defensive stocks, which tend to perform better during periods of market instability. They emphasized the importance of "quality, stability, and income" in protecting investments in volatile markets.

The bank's proprietary "regime indicator" has entered downturn territory, signaling further volatility through the end of 2027. Despite the potential for price swings to make mega-cap tech stocks appear cheaper, the bank remains underweight on Information Technology.

Analysts pointed to the sector's enterprise-value-to-sales ratio, which remains at record highs, as an indication of overvaluation. Additionally, upcoming changes to the S&P 500 index-cap rules could lead to passive selling pressure on tech funds.

Bank of America also highlighted the attractiveness of utilities and real estate dividends, especially as the Federal Reserve's interest-rate cuts drive investors to seek yield opportunities. The firm noted that real estate dividends are likely more sustainable now, with a significant proportion of high-quality market cap.

Top U.S. tech giants, renowned for their advancements in technology and AI, have been instrumental in driving stock market growth. This includes the "Magnificent Seven" — Microsoft Corp. (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), NVIDIA Corp. (NASDAQ:NVDA), Meta Platforms Inc. (NASDAQ:META), Tesla Inc. (NASDAQ:TSLA), Amazon.com Inc. (NASDAQ:AMZN), and Google's parent company Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL).

Why It Matters: The advisory from Bank of America comes at a time when market sentiment is already cautious. In April, the bank had a bullish outlook, predicting a potential 19% surge in the S&P 500 by August 2025.

However, recent market conditions have shifted. Last week, equity strategist Tom Lee warned of a possible 7%-10% market pullback in September, urging caution but also advising investors to be ready to "buy that dip."

Adding to the complexity, JPMorgan has suggested that anticipated Federal Reserve rate cuts may not significantly boost the stock market, indicating a more reactive approach from the Fed.

Meanwhile, tech stocks have faced additional pressure. Despite Gene Munster of Deepwater Asset Management maintaining a bullish stance on AI's transformative potential.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote