Bank of America Warns of Short-Lived Rally, Urges Investors to Sell US Stocks and Dollar

Bank of America analyst Michael Hartnett advises investors to sell the recent rally in US stocks and the dollar. Three factors are needed for the market's "pain trade" to end: a US-China trade deal with tariff rates below 60%, lower US Treasury yields through Fed rate cuts, and resilient consumer spending.

Investors should exercise caution and consider selling into the recent rally in US stocks and the dollar, according to Bank of America analyst Michael Hartnett. Hartnett, the strategist at BofA, believes that the market's "pain trade" is driven by a narrow leadership from mega-cap tech stocks and that further upside in equities would require a combination of specific conditions to be met.

Hartnett advises that for the market's "pain trade" to end, three key factors must be addressed:
1. US-China Trade Deal: A trade agreement with tariff rates below 60%.
2. Lower US Treasury Yields: Fed rate cuts to bring down US Treasury yields.
3. Resilient Consumer Spending: Continued strength in consumer spending.

The recent rebound in US stocks and the dollar is seen as a "pain trade" driven by narrow leadership from mega-cap tech stocks. Hartnett believes that the trend of global capital rotating away from US assets will continue until these conditions are met. He notes that the US exceptionalism is being replaced by a repudiation, with global capital shifting towards commodities, emerging markets, and international equities, particularly in China tech and European banks [1].

In addition, Hartnett sees secular U.S. dollar depreciation as the "cleanest investment theme to play." He predicts that the trend will continue until the Federal Reserve starts cutting interest rates, the US reaches a trade deal with China, and consumer spending stays resilient. The weak dollar theme favors increased global asset allocation to commodities, emerging markets, and international stocks [1].

The recent rally in US stocks and the dollar is also influenced by the Fed's potential interest rate cuts. The Federal Reserve has signaled that it may cut interest rates as early as June, following comments by a Fed official that bolstered the odds of a rate cut. The rally in US Treasury yields has been driven by short to intermediate-maturity tenors, which are more sensitive to Fed interest-rate changes [2].

Hartnett's advice comes at a time when the global bond market has seen significant flows. Investors have poured $33 billion into cash, $9.2 billion into equities, and $3.3 billion into gold, according to the latest Flow Show report from Bank of America. Meanwhile, Treasuries posted their biggest four-week inflow since March 2023 at $29.4 billion, and gold continued its strong momentum with inflows for the 15th consecutive week [1].

In summary, Bank of America analyst Michael Hartnett advises investors to be cautious about the recent rally in US stocks and the dollar. He believes that the market's "pain trade" will continue until a US-China trade deal with tariff rates below 60%, lower US Treasury yields through Fed rate cuts, and resilient consumer spending are achieved.

References:
[1] https://za.investing.com/news/stock-market-news/sell-the-rebound-in-us-stocks-and-dollar-bofas-hartnett-says-3674435
[2] https://www.advisorperspectives.com/articles/2025/04/25/us-bonds-rally-feds-hammack-revives-odds-june-rate-cut
[3] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3R30Q0:0-bund-yields-snap-five-week-falling-streak-on-hopes-for-tariff-relief/
[4] https://finance.yahoo.com/news/bofa-hartnett-warns-sell-rebound-094438382.html