Bank of America warns of "policy shift bubble": $164 billion flows into U.S. stocks, interest rate cut expectations + tax reduction bill may create massive risks
Bank of America strategist Michael Hartnett warned that as the market anticipates interest rate cuts from the Federal Reserve, $164 billion has flowed into U.S. stocks, increasing the risk of a speculative bubble. The report pointed out that a policy shift towards tax cuts and interest rate reductions could create extremely high bubble risks in the second half of the year, leading to a weaker dollar. The S&P 500 index is approaching historical highs, and the yield on 10-year U.S. Treasury bonds has fallen by more than 30 basis points. Hartnett recommends constructing a barbell investment portfolio to balance risk and return
According to the Zhitong Finance APP, Bank of America strategist Michael Hartnett pointed out that as the market's expectations for the Federal Reserve's interest rate cuts attract massive funds into the stock market, the risk of a speculative bubble in U.S. stocks is continuously rising.
As negotiations between the U.S. and China, as well as other trading partners, approach an agreement, concerns over the tariff war and geopolitical factors are gradually diminishing in investors' minds. Instead, the market is betting that the Federal Reserve is more likely to cut interest rates and is waiting to see if U.S. President Donald Trump's tax cut plan can be passed in Congress next month.
Hartnett's team wrote in the Bank of America report that the policy combination of "shifting from tariff policies to tax cuts and interest rate cuts" could create extremely high bubble risks in the second half of this year and lead to further weakening of the dollar. The report cited EPFR Global data showing that $164 billion has flowed into the U.S. stock market this year, which is expected to set a record for the third-largest annual inflow in history.
The S&P 500 index is currently approaching its historical high, while the yield on 10-year U.S. Treasury bonds has fallen by more than 30 basis points from its peak in May. The swap market currently expects the Federal Reserve to cut interest rates four times in the next 12 months.
Hartnett added, "The best investment strategy is to build a 'long U.S. growth stocks/long global value stocks' barbell portfolio," which aims to balance risk and return. His team also pointed out that if no bubble occurs in the artificial intelligence sector, accelerating profit growth will become "the most likely upside surprise" for U.S. and global stock markets in the second half of the year
