BofA Hartnett: Stocks were the biggest winners in the first five years of the 2020s; commodities will be the winners in the next five years.

BofA Hartnett: Stocks were the biggest winners in the first five years of the 2020s; commodities will be the winners in the next five years.

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The global macro landscape is undergoing profound restructuring. Bank of America's chief investment officer Michael Hartnett believes that stocks were the winners in the first half of the 2020s, but in the second half, the market’s main trend will shift from U.S. stocks and the U.S. dollar to commodities.

In the latest Flow Show report, Hartnett points out that six major structural shifts are driving this rotation: globalization turning to nationalism, prioritizing efficiency shifting to prioritizing people's livelihood, the Federal Reserve turning from independence to compliance, the U.S. moving from open to controlled borders, the AI arms race turning toward disruption, and the U.S. economy shifting from services to manufacturing, compounded by dollar depreciation and excessive global fiscal expansion. Against this backdrop, commodities have become tools for both risk and inflation hedging for asset allocators.

In recent market judgments, Hartnett's forecasts have once again been validated—his earlier sell signals precisely captured the stage highs of the S&P 500, and then he almost hit the market bottom. Currently, he characterizes market sentiment as shifting from "sell on highs" to "May record highs," and predicts stock fund inflows will hit a new record in 2026.

Commodities, International Stocks, and Small Caps to Lead in the Second Half of the 2020s

Hartnett characterizes the current macro environment as a combination of deep structural shifts. In this context, he judges that market leadership in the second half of the 2020s will shift from the dollar and large-cap U.S. stocks to commodities, international stocks, and small caps. He writes that commodities now offer both risk and inflation hedging functions, while the dollar only retains value as a bear market hedge. Trade shocks, NATO order loosening, and the threat to the OPEC petrodollar cycle all pose long-term negatives for the dollar.

Hartnett also says he is still willing to buy 30-year U.S. Treasuries when yields are at 5%, seeing it as a contrarian opportunity like stocks in 2008 or commodities in 2018. But he admits that unless voters truly turn to support fiscal discipline, government bonds are more likely to see bear market rebounds than a true bull market. Politicians still need to appease voters with full employment, and fiscal expansion will continue to push nominal GDP higher; U.S. nominal GDP has already risen 60% in six years.

Policy Panic as the Bottom Line, Real Risk Lies in Policy Failure

Hartnett cites and paraphrases James Carville—"Now it's the stock market's turn, James"—to explain his core view: policy makers' panic often signals the market's bottom. He points out that since the 2008 global financial crisis, every Wall Street bear market and correction has been reversed by policy easing.

This time is no exception. The S&P 500, after falling just 4% and reaching an oversold state, got a boost from ceasefire news and then rallied for seven consecutive trading days. Hartnett believes the stock market has essentially become "too big to fail", and the real risk is policy failure—i.e., a crash in the dollar or bond market, or a credit event.

Politically, Trump’s overall approval rating is currently 41%, economic approval 37%, inflation approval 33%, all hitting record lows but still higher than Biden’s corresponding lows in 2022. Hartnett thus judges that midterm election pressures will prompt policies to turn looser to improve affordability for ordinary people, which is positive for consumer stocks.

Fund Flows Show Risk Appetite Rising, But Sentiment Still Has Room to Fall

Last week’s global fund flow data showed $70.7 billion flowing into cash, $36.8 billion into stocks, $8.7 billion into bonds, $3.5 billion into gold, and $200 million into cryptocurrencies.

Hartnett points out that two long-term trends since 2008 remain firm: passive investing continues to outperform active investing, with stock ETFs seeing a net inflow of $7.1 trillion while long-term stock funds have seen net outflows of $3.4 trillion; corporate bonds have continued to outperform government bonds, with investment-grade bond funds seeing $2.7 trillion in net inflows, compared to just $0.9 trillion for U.S. Treasury bond funds.

Bank of America's Bull & Bear Indicator is currently at 6.3, in the neutral range— the contrarian "sell signal" triggered on December 17 ended on March 25. Hartnett notes that next Tuesday’s release of the April fund manager survey will be a key reference.

He notes that if extreme pessimistic readings similar to last April’s “liberation day”— global growth expectations falling to a 30-year low of -82%, cash holdings rising to 4.8%, and equity allocation dropping to -17%— were to appear again, this would signal a “close your eyes and buy” opportunity. Current sentiment is pressured, but still far from extreme levels. At last May's market bottom, the Bull & Bear Indicator hit a low of 3.4, much lower than the current 6.3.

Risk Disclaimer and Exemption ClauseThe market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment decisions based on this article are at your own risk. ```