The great asset rotation is underway! BofA’s Hartnett: U.S. policy is fueling the “anything goes, except the dollar” trade!

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Bank of America strategist Michael Hartnett issued the latest warning: As the Trump administration's “overheating economy” policy mix overlaps with tariff shocks, global capital is fleeing dollar assets at an unprecedented pace, and a structural rotation across asset classes has already begun.

According to Wind Chaser Trading Desk, the report states that since the beginning of 2026, $104 billion has flowed into funds in developed markets such as Europe and Japan, while the inflow into U.S. funds during the same period is only $25 billion. The gap, over four times, reflects that “U.S. exceptionalism” is being replaced by “global rebalancing.”

Hartnett believes that investment logic is undergoing a fundamental reconstruction. U.S. stocks, especially tech giants, are no longer the only safe haven; capital is beginning to shift towards emerging markets, commodities, and international markets. This trend is not a short-term tactical adjustment, but a pre-emptive pricing of the “new world order.”

In terms of asset allocation, the report suggests investors reduce their exposure to U.S. large-cap growth stocks, increase physical assets (gold, oil), emerging market equities, and U.S. small-cap value stocks, in order to respond to the relative decline in attractiveness of dollar assets.

The Twilight of Dollar Hegemony and the “New World Order”

Since the Trump administration launched its historic tariff policy in April, even though some measures were later withdrawn, market confidence has suffered irreversible damage. Hartnett summarizes the current trading logic as the “Anything But Dollar” (ABD) trade, which is a structural repricing triggered by the “overheating economy” policy.

Data supports this judgement. Since the end of 2024, the US Dollar Index has fallen 10%. U.S. stocks have notably lagged: although the S&P 500 Index is up 15% in the same period, the MSCI World ex-US Index soared by 39%, a vast difference.

Asset performance so far this year further reveals the threads of rotation. Gold is up 13.4%, oil up 9.5%, leading the pack; U.S. stocks are down 0.2%, the dollar down 1.4%, and Bitcoin plunged 24%, making them clear losers in this rotation. Hartnett emphasizes, this is not a periodic short-term fluctuation, but the beginning of a “new world order.” Global capital is accelerating migration from dollar assets to physical assets, emerging markets, and international equities.

Capital Flows: Voting with Their Feet, Fleeing Wall Street

Capital flows are writing the clearest footnotes to Hartnett's “global rebalancing.” Since the start of 2026, European and Japanese stock funds attracted a total of $104 billion in inflows, while U.S. funds only recorded $25 billion, more than four times the difference, confirming the trend of accelerated capital outflow from dollar assets.

There are frequent highlights within segments. Korean equities recorded the strongest four-week capital inflow since 2002, totaling $14.3 billion; the infrastructure sector also marked the best absorption since 2007. Though tech stocks still see inflows, Hartnett warns of the accumulating risk of rotation from “AI panic to AI poverty,” potentially triggered if mega cloud vendors announce capital expenditure cuts.

Another key signal comes from Bank of America's private clients. In the first week of February, the scale of withdrawals from cash and U.S. Treasuries hit the highest in the past 14 years, and funds shifted toward municipal bonds, investment-grade bonds, and Japanese equity ETFs, showing that domestic funds are also following a “de-dollarization” allocation logic.

Echoes of History: A “Grand Rotation” Seen Once Every Fifty Years

BofA strategist Michael Hartnett, by reviewing the last 50 years of market history, drew a clear pattern: major political and geopolitical events always trigger a switch in asset leadership. At the juncture of 2026, he believes a new rotation is already in motion.

Looking back at history, every systemic turning point reshaped capital flows. In 1971, the collapse of the Bretton Woods system led to domination by physical assets and a surge in gold; in 1980, Volcker’s rate hikes triggered a forty-year bull market in bonds; in 1989, the fall of the Berlin Wall and globalization propelled US stocks’ rise; in 2001, China joined the WTO and emerging markets and commodities boomed; in 2009, the QE era ushered growth and tech stocks into a golden age; in 2020, the pandemic and fiscal expansion sent the “Magnificent Seven” and Bitcoin to frothy highs.

Now, Hartnett offers his core view for the next decade: Emerging markets and small-cap stocks will take the lead.

The logic points in two directions. First, from Wall Street to Main Street, populism replaces elitism, isolationism replaces globalization; this structural shift will benefit small-cap value stocks rather than large-cap growth stocks. Second, from America to emerging markets, the end of “U.S. exceptionalism” is driving capital toward undervalued Asia-Pacific regions.

Debt Black Hole and Inflation Hedge

The continued deterioration of U.S. fiscal health is becoming the core pillar for the “short dollar” trade. Data shows U.S. national debt is soaring at the out-of-control pace of $1 trillion every 100 days. According to CBO estimates, in the next decade, annual U.S. interest payments will surge from $1 trillion to $2.1 trillion.

BofA strategist Michael Hartnett notes that the mounting interest burden may eventually force the U.S. government to implement Yield Curve Control (YCC), meaning a weak dollar may become a policy norm.

Given this, Hartnett reiterates that long-term U.S. Treasuries are the most reliable risk hedge in 2026. The core logic is that the U.S. government will not allow 30-year Treasury yields to break the psychological policy threshold of 5%, making long-term bonds both a safe haven and policy-backed asset.

Market Sentiment Indicator: Sell Signals Still Flashing

Although capital is rapidly flowing out of the U.S., market sentiment remains extremely euphoric. The latest reading of the BofA Bull & Bear Indicator is 9.4, down slightly from the previous 9.6, but still well above the sell threshold of 8, sending a clear contrarian warning.

The report states that three conditions must be met for this sell signal to be lifted: a significant rise in cash levels, large-scale short-covering in bonds, and technology stock positions falling to neutral. The market has clearly not met any of these thresholds yet.

BofA strategist Michael Hartnett concludes that the script for 2026 is now clearly written: the main themes will be inflation hedging, physical assets, emerging markets, and non-dollar currencies. For investors still clinging to U.S. tech giants and dollar cash, it's time to reset the asset allocation clock.

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The above excellent content comes from Wind Chaser Trading Desk.

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Risk Disclaimer and Exclusion ClauseThe market carries risks, investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situation. Investment decisions made based on this are at your own risk. ```