By Steve Goldstein
Strategists led by Michael Hartnett says tariffs may end up being deflationary
Bank of America strategists are recommending investors buy bonds, gold and out-of-favor stocks on expectations of an interest rate cut from the Federal Reserve, former President Donald Trump winning the election, and a soft landing for the U.S. economy.
Strategists led by Michael Hartnett advise investors be bullish toward “bonds, bullion and breadth”, the latter of which includes distressed value sectors like real estate investment trust and distressed growth sectors like biotech.
The bond market knows the Fed is cutting rates, U.S. voters are angry about inflation, and that the labor market is weakening, says Hartnett and team.
Related: How to invest in bonds like a pro
Proposed import tariffs might also be deflationary rather than inflationary, and bonds might hedge unanticipated second-half volatility as well as a harder landing for the economy.
“New tariffs threaten a weak global economy with recession,” they say. They add that a 2020s trade war would be about technology, so not as U.S. dollar-positive as the consensus believes.
As the strategists have been advising for some time, they are saying the first Fed interest rate cut should be “sold” using traditional buy-the-rumor, sell-the-news logic.
Over the last week, gold saw the largest fund inflow since March 2022, high-yield bonds saw the largest inflows since Nov. 2023, and financials the largest inflows since Nov. 2023. Bonds saw the eight-largest inflows ever and the biggest since Oct. 2020, Bank of America said.
The S&P 500 SPX is up 16% this year, and the small-cap Russell 2000 RUT has gained 8%, buoyed by last week’s softer-than-expected U.S. inflation data.
Gold (GC00) hit a record high this week, while the S&P U.S. government bond index is up 1% this year.
-Steve Goldstein
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(END) Dow Jones Newswires
07-19-24 1024ET
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