BofA’s Hartnett says stay long commodities and gold as ’policy panic’ works

Bank of America strategist Michael Hartnett believes that policy intervention is working to keep bond yields low, advising investors to remain long commodities and gold. He cites the surging Japanese yen as evidence of efforts to maintain key market thresholds like $4-a-gallon gas, 160 yen, and 5% Treasury yields. Hartnett emphasizes the importance of protecting the nominal macro boom and asset-price bull market, recommending staying long commodities and gold despite central banks' potential rate hikes.

He highlights the strong 10-year rolling returns for U.S. stocks (15%) and commodities (11%), contrasting them with negative long-run returns for Treasuries (-2%). Hartnett draws historical parallels to 1939, 1974, and 2009 for stocks, and 1933 and 2018 for commodities, as strong entry points. He also notes that a Democratic sweep in the U.S. midterms is unlikely, but warns that a shift in Trump's approval rating (35%-40%) and prediction markets (50% probability of a Democratic sweep) could lead to a risk-off move, causing stock declines and dollar/bond yield drops.

A split outcome of a Republican Senate and Democratic House would be a "gridlock = goldilocks" scenario. Positive inflows were observed across various asset classes, with cash funds leading at $30 billion, followed by bonds ($18.3 billion), gold ($3.2 billion), and equities ($2.8 billion) – the smallest equity inflow in nine weeks.