Bank of America says investors face a “huge risk” of being too defensive at the trough of a cycle and advises reducing the size of such positions. The bank noted that stocks with “expensive negative momentum” — which it dubbed “the defenders” — outperformed in November on the back of a less aggressive U.S. Federal Reserve and signals that China may loosen its zero-Covid policy. Looking ahead, however, BofA expects “defender” stocks with falling earnings momentum to underperform the MSCI AC World Index. “Our indicators of the global cycle have not yet signaled a trough, but our tactical indicators are positive, which suggests investors may want to reduce the magnitude of defensive positions,” BofA analysts wrote in a Dec. 4 note. Market participants are closely watching for indicators of future Fed policy amid recession fears. The U.S. Consumer Price Index and Fed meeting, both this week, will be eyed for signs the central bank’s efforts to tame inflation are working. Stocks that are ‘global contenders’ Against this backdrop, BofA identified stocks that are “inexpensive” but have strong earnings momentum and price momentum. It dubs these “global contenders.” “Our back-testing and subsequent performance show that stocks with above-average earnings momentum tended to outperform, stocks with above-average price momentum tended to outperform, but stocks with both the characteristics tended to perform even better,” it wrote. These stocks have outperformed the MSCI AC World Index by 6.9% year-to-date, the bank said. It added, however, that not all companies with rising earnings estimates beat the market and stressed that investors should look to differentiate between the stocks set to outperform versus those that will lag their peers. The bank’s “global contenders” screen contains 30 stocks including: U.S.: Gaming company Electronic Arts , energy tech firm Enphase Energy , health care company Jazz Pharma , and beauty firm Ulta Beauty . Europe: German health care company Bayer , and Commerzbank . Asia: State Bank of India , and Japanese automaker Mazda Motor . Wells Fargo also this week named Enphase Energy a top pick , saying its growth is “recession proof.” — CNBC’s Michael Bloom contributed to this report.