Bank of America Hartnett: Sell U.S. stocks on rallies, buy gold on dips

The market is shifting from "American exceptionalism" to "American denial." Bank of America global strategist Michael Hartnett advises investors to sell U.S. stocks on rallies and buy international stocks and gold on dips.

In his research report released on the 24th, Hartnett stated that recent fund flows indicate that U.S. stocks recorded an outflow of $800 million, while gold saw an inflow of $3.3 billion. This suggests an increasing preference for gold in the market.

As the global economy rebalances, funds are flowing from the U.S. market to other regions, particularly emerging markets and Europe. This trend in fund movement supports gold prices. So far this year, gold has performed the best (+26.2%), followed by government bonds (+5.6%) and investment-grade bonds (+3.9%), while U.S. stocks have declined by 3.3%. Additionally, U.S. household stock wealth has shrunk by about $6 trillion this year.

Hartnett recommends, “Stay BIG, sell rips,” meaning to go long on bonds, international stocks, and gold. Investors should sell on rallies in the U.S. stock market rather than blindly chasing prices.

Hartnett: The market is at a historic turning point

Hartnett noted that year-to-date performance of financial assets shows a clear trend: gold leads (+26.2%), bonds perform well (government bonds +5.6%, investment-grade bonds +3.9%), while U.S. stocks (-3.3%) and the dollar (-8.5%) have significantly declined.

Recent fund flows show that stock markets in all regions have recorded inflows (Europe $3.4 billion, emerging markets $1 billion, Japan $1 billion), only U.S. stocks recorded an outflow of $800 million; gold saw an inflow of $3.3 billion.

Current trends indicate that the relationship between Wall Street and Main Street is being rebalanced. Bank of America data shows that U.S. household stock wealth has shrunk by about $6 trillion this year, and the ratio of private sector financial assets to GDP in the U.S. has decreased from over 6 times to 5.4 times.

Hartnett believes this change marks the end of an era of "never been so prosperous" — low interest rates, over $30 trillion in global policy stimulus, a 9% U.S. government deficit, and an AI boom.

Three Key Drivers of Change

Hartnett believes that the current market correction is triggered by the "3B" factors:

• Bonds: U.S. Treasury yields have seen the fastest 50 basis point rise since May 2009.
• Base: Trump's approval rating has dropped from 53% to 46%.
• Billionaires: The market value of tech giants has evaporated by over $5 trillion.

To reverse the "sell the rally" trend, the market needs three factors:

• Interest Rate Cuts: Expectations for the Federal Reserve to cut rates (the market expects a 65% chance of a rate cut at the June 18 FOMC meeting and a 100% chance at the July 30 meeting).
• Tariffs: Easing of Trump's tariff policies.
• Consumers: Resilience in U.S. consumer spending.

Global Revaluation and Dollar Weakness

Hartnett states that the major trend for 2025 is that stock and credit valuations will peak. Historically, the average P/E ratio of the S&P 500:

• Averaged 14 times in the 20th century (during World Wars, the Cold War, the Great Depression, and stagflation).
• Averaged 20 times in the 21st century (during globalization, technological advancement, and loose monetary policy).
• In the first half of the 2020s, 20 times has become the bottom line for the P/E ratio.
• In the future, 20 times may become the upper limit for the P/E ratio.

Hartnett believes that the continuous depreciation of dollar assets is the clearest investment theme, and the surge in gold prices is a clear signal of this trend. The trend of dollar depreciation will benefit commodities, emerging markets, and international assets (Chinese technology, European/Japanese banks)