Bank of America: AI anxiety amplifies stock reactions to earnings, while options markets underprice midterm election volatility

Why are stock reactions after earnings becoming more extreme?

On 29 October, Alphabet and ServiceNow fell 12.6% and 27%, respectively; Intel fell 28.6% the following day. All three recorded their largest single-day declines on record. Based on the pace of events so far this year, BofA expects the number of extreme volatility events in technology stocks in 2026 to be the second highest in more than 30 years, behind only 2025.
The magnitude of stock price reactions after earnings releases by S&P 500 companies has risen, and earnings-day moves account for a growing share of individual stocks’ total quarterly volatility. Although earnings-per-share surprises relative to market consensus have widened, they have not kept pace with the increase in stock price reactions.
BofA believes the unprecedented scale of AI investment makes the size and timing of returns harder to judge. Short investment horizons, combined with year-end performance reviews, also prompt investors to trade more aggressively in response to new information.

As of 30 October, bubble risk indicators for US healthcare and consumer staples stocks were at high levels, while technology stocks were under pressure. The indicator combines price returns, volatility, momentum and fragility to identify bubble-like price patterns.
The signals remain concentrated within the S&P 500: 13 constituents have indicator readings above 0.8, with a combined weight of 2.2%. At the height of the internet bubble, the corresponding count was approximately 50 to 100, with a weight of approximately 20% to 40%.
BofA emphasizes that the indicator uses only price data and should be assessed alongside valuations and positioning: significant changes in fundamentals or price rebounds after external shocks can both raise the indicator.

Weekly options on the EURO STOXX 50 index recently accounted for approximately 20% of total options trading volume, more than twice their average share over the past year, with trading concentrated in contracts expiring on 6 November. But BofA notes that election volatility implied by S&P 500 and EURO STOXX 50 index options remains below the historical average moves following midterm elections.
BofA is focusing on European straddles expiring on 6 November: indicative premiums for the DAX, Swiss SMI and EURO STOXX 50 are 1.7%, 1.3% and 1.7% of their respective index levels. During presidential and midterm election weeks since 2008, the indices’ maximum moves exceeded these premiums 89%, 100% and 89% of the time, respectively. The cost of buying a straddle is the premium paid.

BofA believes SK hynix’s strong earnings support its assessment of the memory cycle. Its analysts expect manufacturing bottlenecks to limit wafer capacity expansion, and forecast HBM sales rising from 161 billion dollars in 2027 to 212 billion dollars in 2028. Meanwhile, foreign investors remain heavy net sellers, and domestic buying in South Korea is relatively weak.
BofA proposes a KOSPI 200 options structure that finances a call by selling a put with a knock-in condition, at an indicative initial cost of zero. Under the report’s scenario, it can participate in up to 25% of gains if the index rebounds 30%. However, the call expires if it reaches 130% of the current index level, while a further 35% decline to the knock-in price could create an obligation under the sold put to buy at 85% of the current level.
Supply is a medium-term constraint: BofA believes capacity expansion by Chinese manufacturers particularly affects conventional DRAM. If memory supply grows faster than expected, the outlook for industry earnings will also come under pressure.