Last year, Bank of America’s Hartnett, who was bearish on the U.S. stock market, stated: When everyone is bearish, it’s time to buy, and he is optimistic about the Chinese stock market, expanding from technology to consumption

In recent months, Michael Hartnett, Chief Investment Officer of Bank of America, has been warning that U.S. stocks are currently overvalued compared to non-U.S. stocks (mainly due to the large AI bubble). However, his views have not been taken seriously, as retail traders are immersed in an unprecedented surge.

Just a week after the stock market hit a historic high, U.S. stocks experienced the fastest five-day decline since the outbreak of the pandemic, making risk management a hot topic again, which has drawn attention to Hartnett's latest report.

Hartnett believes that when the market is unanimously bearish, it is precisely a good opportunity to buy U.S. stocks, and attention should be paid to key market support levels. At the same time, he is optimistic about the potential of the Chinese stock market and believes that if Chinese retail sales accelerate, the upward momentum of the stock market may expand from the technology sector to the consumer sector.

“Trump Put Options” Appear, Focus on Key Market Support Levels, “Minister Ma” Cannot Be Ignored

In his latest report, Hartnett pointed out that market sentiment has shifted from extreme optimism to caution. He believes that the key to determining when to buy U.S. stocks lies in when the market no longer views the current decline as a “healthy correction.”

Hartnett mentioned that when it comes to the long-term economic and inflation outlook for the U.S., Jerome Powell, who controls overnight interest rates, still plays a crucial role, but Elon Musk, who leads DOGE, has a more profound impact on the market:

While Powell still controls short-term rates, Musk now controls the long end of the yield curve.

Focusing on the present, Hartnett believes that to prevent the tense “new bulls” from selling off, the post-election volume-weighted average price (VWAP) is a key level that needs to be maintained, which are META—$639, PLTR—$80, QQQ—$519, and SPY—$597. The VWAP for Bitcoin since the election is $97,600, and failing to maintain above this level is the first sign of a bubble bursting (Tesla's VWAP is $371).

_ (Note: The volume-weighted average price (VWAP) refers to the average price of a security calculated based on the volume of transactions over a specific period. It is an indicator of market trading activity and is often used to determine whether a security is undervalued or overvalued.)_

It is worth noting that the S&P 500 index closed at 5,783 points on election day, and Hartnett stated:

“This is the first strike price for the ‘Trump Put Options.’ Once it falls below this price, headlines about ‘the stock market falling under Trump’s leadership’ will begin to appear. After falling below this price, investors holding risk assets will be very eager and need policymakers to provide some verbal support for the market.” Last Friday, the S&P 500 closed at 5,954 points.

Another indicator worth closely monitoring is IJR (U.S. Small-Cap ETF). Hartnett believes that unless it breaks through the 2021 high of $120, under the backdrop of "Make America Great Again" (MAGA), factors such as tariffs, foreign direct investment (FDI) inflows, tax cuts, deregulation, and Federal Reserve interest rate cuts, bonds are likely to outperform stocks.

Global Investor Sentiment Shifts, China's Market Potential Emerges

The report also summarizes recent feedback from Bank of America’s communications with clients in Dubai and London, noting that investors are skeptical about the S&P 500 index, viewing the European market as "leasing" rather than "owning," while interest in long-term bonds remains as strong as in the past decade.

However, the speed of changes in investor sentiment and narratives far outpaces position adjustments:

• Bank of America's February global fund manager survey shows cash levels at 3.5%, the lowest since 2010, indicating that investors are leaning towards risk, but the ammunition for "buying the dip" is limited.

• Most investors prefer credit bonds over government bonds.

• Short positions in European stocks have been reduced through European banks, but asset allocators remain structurally bearish; since the onset of the Russia-Ukraine conflict in February 2022, for every $100 that flowed out of European stocks, only $3 has returned in the past three weeks.

Hartnett also pointed out that the significant decline in government trust has led to a bull market in gold. Since January 2024, out of 33 global elections, 27 have seen the ruling party ousted, with mainstream parties in the UK, Germany, and France achieving record low vote shares.

Hartnett believes that U.S. tech stocks are overvalued and overly held compared to Chinese tech stocks. He predicts that the market will see a massive rotation from the $16 trillion market cap of the U.S. "Seven Giants" to the $1 trillion market cap of China's BATX (Baidu, Alibaba, Tencent, Xiaomi).

He also noted:

“As China's retail sales accelerate, the rally in Chinese stocks will expand from the tech sector to a broader range of areas.”