U.S. stocks and the U.S. dollar have stopped falling and rebounded, but Bank of America warns: investors should sell on rallies as the current conditions do not support sustained increases
Bank of America strategists warn investors to sell on rallies in the dollar and U.S. stocks, believing that the current conditions do not support sustained increases. Although U.S. stocks and the dollar have recently rebounded, strategists point out that the dollar is in a long-term depreciation process, and there is still room for capital to exit U.S. assets. The S&P 500 index can only break through key support and resistance levels under conditions of Federal Reserve rate cuts, a trade agreement between the U.S. and China, and strong consumer spending
According to the Zhitong Finance APP, as Trump's attitude towards tariff policies has softened, stating he has no intention of firing Federal Reserve Chairman Jerome Powell, and with Federal Reserve officials signaling interest rate cuts, U.S. stocks and the dollar have rebounded in recent days. However, Bank of America strategists indicate that investors should sell on rallies in the dollar and the dollar's rebound, warning that the current conditions do not support a sustained rise.
Led by Michael Hartnett, the Bank of America strategist team states that the dollar is in a long-term depreciation process, and there is still room for further capital outflows from U.S. assets. The strategists believe this trend will continue until the Federal Reserve begins to cut interest rates, a trade agreement is reached between the U.S. and China, and consumer spending remains strong.
The strategists stated, "The current market's 'pain trade' is undoubtedly driven by the rally in U.S. stocks and the dollar led by the 'seven giants'." They noted that only when the above conditions are met can the S&P 500 decisively break through the current key support and resistance levels—currently estimated at 5,690 points, close to its 50-week moving average.
Data shows that the S&P 500 index once fell 19% from its February peak, but with the intervention of bargain-hunting investors, the index has recovered nearly half of its losses. Meanwhile, the Bloomberg Dollar Index has fallen 6.3% this year.
The strategists pointed out that the depreciation of the dollar is "the clearest investment theme." They believe that the DeepSeek phenomenon that emerged at the beginning of this year represents the peak of "American exceptionalism," and Trump's policies will trigger fiscal easing in Europe, while his tariff remarks mark the beginning of the decline of globalization.
The strategists added, "The weakening of the dollar will manifest through a gradual decline in interest rates (slow process) or a rapid increase in interest rates (quick occurrence). This has been clearly indicated by the surge in gold prices." They also stated that the theme of a weaker dollar will encourage global asset allocation to increase investments in commodities, emerging markets, and international stocks, such as Chinese tech stocks and European and Japanese bank stocks
