Based on the expectation of continued depreciation of the dollar, increased market uncertainty, and rising demand for safe-haven assets, Hartnett remains bullish on gold.
Author: Zhang Yaqi
The market is shifting from "American exceptionalism" to "American denial." Michael Hartnett, a global strategist at Bank of America, 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 noted that recent fund flows indicate an outflow of $800 million from U.S. stocks, while gold saw an inflow of $3.3 billion, suggesting 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 capital 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 stated 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), while only U.S. stocks have seen an outflow of $800 million; gold has seen an inflow of $3.3 billion.
The current trend indicates a rebalancing of the relationship between Wall Street and Main Street. Data from Bank of America 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"—characterized by 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 the current market correction is triggered by "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 on rallies" trend, the market needs three factors:
Rate cuts: Expectations for the Federal Reserve to cut rates (market anticipates 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 has been:
14 times in the 20th century (during World Wars, the Cold War, the Great Depression, and stagflation).
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 P/E ratios.
In the future, 20 times may become the upper limit for P/E ratios.
Hartnett believes that the continued 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).
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