Bank of America (BAC, Financial) is advising investors to bet against the S&P 500, saying conditions remain unfavorable for equities until two key shifts occur — a meaningful rate cut by the Federal Reserve and a pause in the ongoing U.S.-China trade dispute.
Michael Hartnett, the bank's chief investment strategist, said the U.S. is no longer the global economy's primary growth engine. He referred to this as the end of “U.S. exceptionalism” and the beginning of a period where global capital starts to pull away from American markets.
Until monetary policy shifts, Hartnett favors holding short-term government bonds like 2-year Treasuries and maintains a bearish stance on the S&P 500 until it reaches around 4,800. If policymakers intervene aggressively, he believes that could create an opportunity to reenter risk assets, especially if any recession proves shallow and short-lived.
Bank of America also pointed to a major realignment in foreign investor behavior. Non-U.S. investors hold about 33 percent of Treasuries, 27 percent of corporate bonds, and 18 percent of American equities — totaling roughly $8.5 trillion, $4.4 trillion, and $16.5 trillion, respectively. This past week, Treasuries recorded their highest-ever weekly inflow at $18.8 billion. At the same time, foreign investors pulled $6.5 billion from U.S. stocks and $3 billion from corporate bonds while allocating $600 million back into government debt, signaling a shift toward safety.
