Investors Should Sell into Rallies in US Stocks and Dollar, Warns Bank of America Strategist
Bank of America’s chief strategist, Michael Hartnett, has raised a cautionary flag regarding the recent rallies in US stocks and the dollar. In a report published on April 25, 2025, Hartnett advised investors to “sell the rebound” in both markets, as the fundamental conditions for sustained growth are currently absent. The strategist’s analysis signals a continued trend of weakening for US assets, particularly in light of aggressive trade policies and the lack of a favorable economic backdrop.
A Shift in US Dollar and Stock Market Dynamics
Hartnett and his team, who have been closely monitoring market conditions, emphasized that the US dollar is currently undergoing a longer-term depreciation phase. Despite the recent rebound in US stocks, particularly those led by the “Magnificent 7” companies, the strategist cautioned that these gains are temporary and unlikely to last without significant changes in key economic conditions.
According to Hartnett, the shift away from US assets will likely continue until several crucial events unfold. These include the Federal Reserve starting to cut interest rates, a trade agreement between the US and China, and sustained consumer spending. As these conditions are yet to materialize, the trend of reducing exposure to US assets is expected to persist.
Hartnett also noted that the recent rally in US stocks, particularly the ones driven by the biggest tech companies, has been narrowly focused, with the broader market not showing consistent strength. The S&P 500, for instance, saw a significant drop of 19% from its February peak before recovering almost half of that loss, driven largely by investors jumping in to buy on dips.
The Outlook for US Assets and Inflationary Pressures
The prognosis for US assets in 2025 is not optimistic, according to Bank of America’s strategists. After reaching extreme valuations in 2024, US assets have begun to face a reality check. Investors, worried about the potential impact of aggressive trade policies and tariffs, are cutting back on their exposure to the US market.
One of the biggest concerns highlighted by Hartnett is the potential for the tariffs imposed by the US to hurt global growth and lead to higher inflation within the United States. The strategist believes that these pressures will lead asset allocators to diversify their holdings outside of US-centric assets, seeking safer or more profitable investments abroad.
The Dollar’s Decline and Its Implications for Global Markets
Hartnett underscored that the depreciation of the US dollar is one of the clearest investment themes for the coming months. He sees the trend as an outcome of what he terms “US exceptionalism” coming to an end, with former President Donald Trump’s policies contributing to a shift towards European fiscal excess and the decline of globalization.
A weaker dollar is expected to drive a more significant global allocation towards commodities, emerging markets, and international stocks. In particular, Hartnett pointed to Chinese technology companies, as well as European and Japanese banks, as potential beneficiaries of a weaker dollar.
For investors, the depreciation of the dollar could present an opportunity to diversify holdings into foreign markets. Moreover, the ongoing weakness in the dollar has already been reflected in the soaring price of gold, signaling a potential shift in investor behavior.
A Warning for Asset Allocators
Hartnett’s warnings come as US assets continue to struggle in 2025, with the S&P 500’s early year declines and a 6.3% drop in the Bloomberg dollar index signaling the changing economic environment. As traders brace for further market turbulence, Hartnett’s analysis suggests that asset allocators should reconsider their portfolios and adopt a more global investment approach.
Ultimately, the absence of the necessary economic triggers for sustained growth in US stocks and the dollar, paired with the ongoing trend of dollar depreciation, suggests that the path forward may involve more volatility and a rebalancing of global asset exposure.
