Bank of America strategist Michael Hartnett lays out a distinct investment playbook: buy commodities, Chinese equities and U.S. consumer discretionary names, and move against the U.S. dollar. The recommendations are framed by what the team describes as tariff-related market turbulence, a weakening U.S. fiscal position and a broader shift out of U.S. assets.
Hartnett and his colleagues present commodities as a multi-faceted hedge - one that protects against higher inflation, a softer dollar and heightened geopolitical risk. In a succinct statement of the strategic bet they argue that control of key physical inputs will determine competitive advantage in next-generation technologies:
"Who owns the chips, rare earths, minerals, oil, wins the AI war," the strategist wrote.
The group highlights Chinese equities as another core buy. Their case rests on a series of market and trade signals they view as evidence of rapid Chinese technological progress: the ChiNext index has broken out, Chinese tech exports surged 43% year-over-year to $234 billion, and the renminbi is at its strongest versus the Japanese yen since August 1992. The strategists also point to China having ample energy - from alternative sources and continued access to Russian oil - to sustain its AI-related investments.
"Buy China: biggest equity winners since Trump inauguration are U.S.-China AI war winners (U.S. semis, Asia tech, Canada/LatAm materials)," the note says.
A more contrarian recommendation from the team is to buy U.S. consumer discretionary stocks. They observe that the equal-weighted consumer discretionary sector relative to the S&P 500 has retreated to levels last seen during the 2008 financial crisis and the COVID crash. On a global basis, the sector is trading at three-year lows versus energy names. BofA interprets this pricing as the market having over-embedded stagflation into consumer discretionary and therefore sees upside for a contrarian position.
In the strategists' words, the sector is their "fave contrarian long to trade Trump post-war pivot to address affordability & slump in approval ratings, and great way to hedge H2’2020s electoral shift from "populist capitalism" to "populist socialism."
Another buy idea from the team is yield curve steepeners. Specifically, they expect the 2s30s Treasury curve to bull-steepen beyond 140 basis points. Their rationale includes pressured consumers, collapsing small-business capital expenditure intentions and a sharp re-calibration of rate expectations - which swung from pricing in 125 basis points of cuts last October to only 5 basis points today - all of which point, in their view, to further policy easing ahead.
On the flip side, the strategists present a sell case for the U.S. dollar. Factors cited include tariffs diminishing the dollar's safe-haven appeal, perceived threats to NATO undermining confidence in U.S. assets, and a fracturing of OPEC petrodollar recycling. The team argues U.S. policymakers will prioritize a weaker dollar as a tool to attract foreign capital rather than tolerating higher bond yields.
"Fed pressure to cut to grow, U.S. policymakers will trade weaker dollar rather than higher bond yields to attract foreign capital," the strategists wrote.
Looking at economic and market timing, the team expects both CPI and earnings expectations to peak in the second quarter. They also forecast the 2-year Treasury yield to remain below 4% and the U.S. dollar index to reach new lows beneath 96.
Macro bears, however, flag a notable counter-risk: episodes of a so-called bond tantrum. BofA notes that in the four historical episodes cited, yields rose between 65 and 96 basis points. The strategists additionally highlight the calendar risk associated with the incoming Federal Reserve chair. They point out that incoming Fed Chair Kevin Warsh's arrival on May 15 has historically been associated with yield moves - the 2-year Treasury has averaged a 55 basis point rise in the three months following the start of past Fed chairs' tenures.
In flows data over the past week the headline figure was a record $172.2 billion outflow from money market funds, though BofA cautions much of that movement is tax-related. They note that average April cash outflows over the prior four years were about $41 billion. Other flow details from the team include $17.4 billion into U.S. equities and $7.9 billion into bonds, the latter marking their 51st consecutive week of inflows. Gold and crypto each attracted $1.2 billion during the period.
Regionally, the bank's data show notable outflows: Europe registered $4.7 billion in redemptions - its largest since November 2024 - while China saw $10.8 billion leave. Korea experienced its largest outflow on record at $2.5 billion, Japan lost $4.4 billion, and emerging market equities collectively shed $10.5 billion. Technology funds recorded $3.8 billion in redemptions.
The strategist team's checklist therefore blends commodity exposure, China equities, and a contrarian U.S. consumer discretionary stance with a tactical push into curve steepening, all set against a recommended reduction in U.S. dollar exposure. The calls are anchored to the specific data points and flow patterns above, and come with acknowledged risks from potential bond-market volatility and policy-led shifts in yield dynamics.