The stock market is deeply trapped in a selling mire. How can investment portfolios outperform the market? Bank of America provides key words: essential consumption and high dividends

According to the Zhitong Finance APP, during the Asian market trading session on Monday, the US dollar index briefly fell below the 98 level, and the US dollar against the Japanese yen continued to decline sharply, with a daily drop of over 1%. Meanwhile, the spot price of gold rose more than 2% to over $3,400 per ounce, repeatedly setting historical highs this year. This trend towards a risk-averse market reflects significant cracks in the long-standing belief of global investors in the so-called "American exceptionalism" logic, as well as a sharp deterioration in confidence in the long-term holding of dollar assets due to the Trump administration's desire to remove Federal Reserve Chairman Jerome Powell and intervene in the independence of the Federal Reserve. Investors are turning to the two traditional safe-haven assets, the yen and gold, and even in the face of tactical rebounds, they continue to sell stocks and other risk assets.

As the logic of "American exceptionalism" gradually collapses, US stocks, US bonds, and the US dollar exchange rate have repeatedly experienced a "triple kill" in the stock, bond, and currency markets since April, with risk assets such as stocks, cryptocurrencies, and high-yield bonds experiencing severe turbulence and a downward trend. In particular, the three major US stock indices have recently faced continuous selling, with the S&P 500 index down more than 10% this year and over 5% since April.

The unprecedented "tariff stick" of the Trump administration has continuously struck all dollar assets, and the market pricing behind it fully reflects that investors' confidence in holding dollar assets is increasingly diminishing. Regardless of the final outcome of the chaotic tariff measures introduced by Trump, they will inevitably weaken investors' confidence in the US economy and holding dollar assets, potentially keeping the market in a tense state for the next three months.

In the context of the ongoing sell-off in US stocks, bonds, and currencies, and the market trading trend leaning towards a risk-averse tone, how should global investors position themselves in the US stock market, which still ranks first in global liquidity and market capitalization, to achieve excess investment returns (i.e., alpha α returns) that far exceed the benchmark of the US stock market—the S&P 500 index?

Recently, Wall Street financial giant Bank of America released a research report stating that the policy uncertainty brought by the Trump administration is heating up, and the overall volatility of financial markets is expected to remain high. Tariffs also pose risks of stagflation or recession for the US and the global economy. It is recommended to focus on high-quality consumer staples and fundamentally strong high-dividend defensive stocks. Not only is the consumer staples sector in the US stock market worth investors' attention, but top Wall Street investment institutions such as Goldman Sachs have recently stated that the new round of global trade war has brought significant benefits to consumer staple stocks in the Asian market, increasingly favoring companies that meet the basic needs of domestic buyers.

Since April, market pricing has shown that many investors have allocated funds to fundamentally strong consumer staples and high-dividend sectors, as evidenced by the strong performance of the iShares Global Consumer Staples ETF and the high-dividend sectors in major global stock markets, especially the Hong Kong and A-share markets, which have outperformed the market since April The iShares Global Consumer Staples ETF (code: KXI) has risen over 3% since April, and its increase this year has exceeded 10%, far surpassing the gains of the S&P 500 Index and the MSCI Global Stock Market Index during the same period.

In a Downturn, Focus on "Sales" Over "Profits," Emphasize "Essential" Over "Discretionary"

After a strong start to the global stock market in 2025, risk assets such as stocks, cryptocurrencies, and high-yield bonds were initially hit hard due to "higher-than-expected tariffs imposed by the Trump-led U.S. government" (note), but then significantly rebounded in just a few trading days due to "delayed implementation of reciprocal tariffs," causing the S&P 500 Index to maintain a range of 5100–5500.

The "U.S. Cycle Indicator" compiled by Bank of America shows that the U.S. economic fundamentals have shifted from the "upturn" phase to the first month of the "downturn" phase. Is this a temporary swing or a phase transition? Since February 2022, this indicator has been oscillating between the two phases—this reflects a macro-level economic signal turbulence, with inventory and demand both "whipsawing": first due to the sustained severe fluctuations triggered by the COVID-19 pandemic, and now due to the repeated fluctuations caused by preemptive tariff pricing.

Statistics compiled by Bank of America show that in April, only "inflation" and "capacity utilization" improved, but the underlying logic is largely attributed to stockpiling and demand pull-forward before the tariff policy took effect; the other six statistical indicators—namely the overall EPS revision of the S&P 500 Index, GDP revision, U.S. Treasury yield, ISM Manufacturing, leading economic indicators, and credit spreads—have all significantly deteriorated.

In the current credit cycle, sovereign risk has overshadowed corporate risk. Bank of America statistics indicate that since the beginning of the year, the peak-to-trough spread of U.S. credit has widened by about 200 basis points, the largest change since 2020. Unlike the risk asset sell-off triggered by the COVID-19 pandemic in 2020, default risk and credit demand have remained stable. Bank of America's credit strategy team has proposed a new theme: credit risk stemming from fluctuations in the 10-year U.S. Treasury yield. Large foreign buyers of U.S. Treasuries, such as Japan, may withdraw from U.S. Treasuries, and the uncertainty surrounding U.S. tariff policies and high government debt levels are also contributing factors.

Meanwhile, in the current credit cycle and the "downturn" indicated by the cycle indicator, Bank of America's compiled quantitative indicators show that the corporate health indicator measured by "dividend safety" is better than in previous economic downturns, and the overall performance of the U.S. stock "value index" outperforms the "growth index."

![1745227626(1).png](https://img.zhitongcaijing.com/image/20250421/1745227676899694.png? As the fundamentals of the U.S. economy and even the global economy enter a downward trajectory due to a new round of global trade wars, the Bank of America strategist team advises investors to focus on sales rather than earnings per share during economic downturns, paying attention to actual consumer demand rather than "wants." They recommend actively positioning in the discretionary consumption sector and high-dividend investment strategies, provided that "the fundamentals must be on a long-term stable trajectory."

The Bank of America strategy team currently increasingly favors stocks that are "cheaply valued and have positive sales growth," and research has found that valuation and correction metrics based on "sales" often outperform those based on earnings (i.e., earnings per share EPS) during previous economic downturns. The reason? The Bank of America strategist team states that the main logic is that demand for discretionary consumer goods significantly declines during economic downturns, leading to reduced sales volume and scarce sales growth. Generally speaking, it is easier to maintain strong profit margins through cost-cutting, while achieving unexpected sales growth during downturns requires "strong pricing power"—analysis compiled by the Bank of America strategists shows that this capability is most evident in the "essential consumer sector."

For example, during the current downturn, the Russell 1000 Value Index shows that the actual profit share from essential goods and services such as utilities, telecommunications, insurance, pharmaceuticals, and leasing is higher than that of the Russell 1000 Growth Index. However, not all value-type essential consumer stocks are worth allocating during downturns. The Bank of America states that those media and retail giants with long-term stable fundamentals and strong sales growth have much stronger investment appeal due to factors such as market size, content range, and switching costs.

Coincidentally, the strategist teams at Goldman Sachs and Morgan Stanley also recently recommended that investors position in essential consumer goods stocks, urging a defensive shift, particularly favoring essential consumer goods in the Asian market. Strategists at top Wall Street investment firm Fidelity International also pointed out that the firm has recently chosen to buy Chinese essential consumer stocks, betting that these companies will benefit from government stimulus measures.

Recently, Wall Street investment firms' extreme favor for the global essential consumer goods industry marks a dramatic turnaround for the sector. Over the past few years, as the investment frenzy in artificial intelligence has driven technology stock prices to soar, this sector has remained sluggish This further highlights that as trade tensions threaten to slow down the global economy, investors are beginning to flee growth stocks. Signs that governments in Asian countries are preparing to launch fiscal stimulus measures to support spending have also boosted this group.

Do not overlook the "high dividend sector" during macroeconomic downturns and stock market sell-offs

The Bank of America strategy team stated that as the policy uncertainty of the Trump administration continues to escalate, volatility in global financial markets, including stocks, bonds, and currencies, is likely to remain high. Tariff policies are also bound to bring inflation risks. The so-called "high-quality" fundamentals are the best hedge against severe market risks, and inflation-related returns may create excess returns. Therefore, the traditional market strategy of "high-quality fundamentals + high dividend investment" is worth the attention of global investors.

In its research report, Bank of America specifically screened for individual stocks in the S&P 500 (excluding financials) and the entire U.S. financial sector that have dividend yields higher than the market and strong fundamentals. For the "financial sector" of the U.S. stock market, Bank of America still maintains an Overweight rating, which is the most bullish optimistic view