Bank of America’s Hartnett: When the U.S. debt reaches $38 trillion, should you buy U.S. Treasuries, corporate bonds with spreads at a 20-year low, U.S. stocks at a 40x CAPE, or surging gold? It’s tricky.

Bank of America’s Hartnett: When the U.S. debt reaches $38 trillion, should you buy U.S. Treasuries, corporate bonds with spreads at a 20-year low, U.S. stocks at a 40x CAPE, or surging gold? It’s tricky.

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With money market fund yields expected to drop at least 100 basis points (Fed rate cuts) over the next few quarters, should I buy U.S. Treasury bonds when the U.S. government debt has reached $38 trillion? Or should I buy corporate bonds when credit spreads are at 20-year lows?

Or should I buy stocks with a cyclically adjusted P/E (CAPE) of 40? Or gold, which has just experienced a "vertical surge"? This is tricky.

As central banks around the world begin an easing cycle, investors are being pushed to a challenging crossroads. Recently, Bank of America Chief Investment Strategist Michael Hartnett illustrated this complex investment landscape: against the backdrop of expected declines in money market returns, mainstream assets each present their own tricky problems, leaving investors in a dilemma.

Hartnett's statement clearly highlights the risks in today’s market: the high level of U.S. government debt weakens the safe-haven appeal of sovereign bonds; corporate bonds offer insufficient risk compensation due to ultra-tight spreads; U.S. stocks are highly valued and face major correction pressure; and although gold has strong momentum, the risks of chasing highs are also significant.

Flood of Funds Into Risk Assets and Gold

Despite Hartnett's cautious outlook, the latest flows are rushing into tech stocks and gold at an unprecedented pace.

According to cited data from the report, in the past week, massive amounts of money have flowed out of cash assets ($24.6 billion), moving into risk assets. Specifically, the stock market attracted $28.1 billion, with tech stocks seeing a record $10.4 billion in weekly inflows.

The gold market is equally hot, with a cumulative inflow of $34.2 billion over the past ten weeks, setting a historical record.

Additionally, the Chinese stock market saw its largest weekly inflow since April 2025, reaching $13.4 billion. This "buy everything" momentum highlights the strong risk appetite in the market amid rate-cut expectations.

Currently, the global rate-cut wave is generating enormous liquidity. According to Hartnett's calculations, global stock market capitalization has soared by $20.8 trillion this year.

However, beneath the market frenzy, risks are quietly accumulating. He warns that if asset prices drop and impact the wealthy, the economy could deteriorate rapidly.

At the same time, cracks have started to appear in the credit market ("Krunchy Kredit"). Hartnett predicts that if core sectors like banks and brokers weaken further, or if high-yield bond credit default swap (HY CDX) spreads widen beyond 400 basis points, it will signal deeper deleveraging or liquidation risks, at which point the Federal Reserve will be forced to take more aggressive rate-cutting action.

Hartnett's “BIG” Strategy: Finding Direction Amid Uncertainty

Facing a complex market environment, Hartnett reiterated his “BIG” portfolio, favoring Bonds, International markets, and Gold.

On bonds, he maintains a long position on long-term U.S. Treasuries, predicting that the 30-year Treasury yield will dip below 4%.

He believes that Fed rate cuts, the end of quantitative tightening (QT), and artificial intelligence (AI)’s deflationary effect on the labor market will all support bond prices. The report also specifically mentions zero-coupon bonds as the best hedge against credit event risks.

On international markets, Hartnett remains optimistic about global stocks, expecting the Hang Seng Index to rise above 33,000 points. Bank of America’s global earnings per share (EPS) growth model forecasts 9% EPS growth over the next 12 months, higher than market consensus.

Moreover, while the MSCI Global index has a P/E as high as 19.6, if excluding the U.S., the global stock market P/E is only 15, making valuations more attractive. He firmly believes that market leadership will shift from the “U.S. Exception” of the early 2020s to the “Global Rebalance” in the latter half.

For gold, Hartnett remains extremely bullish, maintaining his forecast that gold prices could break above $6,000/oz next spring. Although gold was listed as the “most crowded trade” in the latest fund manager survey, he believes this is a misunderstanding.

He points out that Bank of America’s high-net-worth clients allocate only 0.5% to gold, and global fund managers only 2.4%—far from saturation. In his view, only a major geopolitical détente or an actual interest rate spike driven by an AI bubble collapse (“black swan” events) could end the gold bull market.

Risk warnings and disclaimerThe market involves risk; investments should be made cautiously. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions herein are appropriate to their particular circumstances. You are solely responsible for your investment decisions made accordingly. ```