Michael Hartnett, Chief Investment Officer at Bank of America, released his 2025 investment outlook report, stating that global markets will continue to follow the theme of "big policy, big actions, and big tail risks."
He predicts further economic divergence globally in 2025. The US economy will experience "inflationary prosperity," while other regions face "deflationary recession" risks.
1. Long "US Prosperity," Short "Global Recession" in Q1
"US inflationary prosperity" and "global deflationary recession" may lead to an overbought dollar and stock market in Q1, with investors already heavily invested in the Trump trade - betting on a rising dollar, US stocks, and higher bond yields.
US small-cap stocks (Russell 2000) are expected to outperform due to tariffs, immigration controls, deregulation, and tax cuts.
2. Buy Non-US Stocks, Bet on Policy Shift in Europe/Asia in Q2
By spring, a Fed shift to a hawkish stance combined with "policy panic" in Europe and Asia may occur. "US exceptionalism" will peak in Q2, signaling:
Major US stock market correction (strong dollar + weak global economy = negative for $.SPX(.SPX)$, 30% of whose revenue comes from overseas);
A shift to cheap international stocks and currencies, driven by fiscal easing in China, new European fiscal policies (Germany elections/Ukraine conflict easing), and aggressive ECB rate cuts.
3. Buy Gold Throughout the Year, Expect Inflation to Rise Beyond Expectations
Fiscal excess, economic isolationism, and AI will overpower deflationary pressures in 2025. Economic prosperity will lead to higher, not lower, inflation.
Gold, cryptocurrencies, and undervalued commodities will outperform, especially if Asian and European "policy panic" triggers investments in copper, raw materials, Latin America, and commodities.
4. Buy US Treasuries with 5% Yield
A potential rise in US Treasury yields to 5% in 2025 presents a significant opportunity.
If yields spike, it could trigger volatility and losses in risk assets but may signal the peak of "inflationary prosperity."
If yields eventually drop below 4% by year-end, global stock markets could recover and rise by 5-10%.
5. Long Cryptocurrencies and Chinese Stocks, Hedge AI/Tech Bubble Risks
The AI and Big Tech bubble is a major "tail risk," with many investors expecting $7 trillion in money market funds to flow into USstocks. Hartnett advises investing in cryptocurrencies and Chinese stocks (undervalued, tech-related) to hedge against the tech bubble.
Comments
Fascinating outlook! If inflation in the US stays strong while global economies struggle, it could definitely lead to some major market shifts. I’m particularly curious about the move into gold and crypto as a hedge against inflation and the tech bubble. What do you think the biggest risk is for investors in 2025? 🤔