Source: Wall Street See
Author: Li Xiaoyin.
Hartnett believes that whether it is Harris or Trump who finally becomes the President of the United States, it will not change the trajectory of the expanding government debt and ballooning deficit in the United States. Therefore, the market will turn to gold in a flight-to-safety sentiment, and it is expected that the price of gold will rise to $3,000 per ounce.
Due to the continued risk of economic recession, Michael Hartnett, a famous strategist at Bank of America, has maintained a bullish stance on US bonds this year, believing that monetary policy will become looser in the next 12 months.
As it turns out, his prediction was accurate. Since Hartnett's bullish call on US bonds, the 10-year US Treasury yield has fallen by 100 basis points, reaching a new low for the year.
In addition to bonds, another asset that Hartnett is bullish on is gold. In a recent research report, Hartnett stated that gold is the "best hedge against accelerating inflation in 2025," and, like in 2021 and 2022, gold has provided early warning signals for explosive inflation during these two years, with a projected price increase to $3000 per ounce.
Historical data since the tenure of President Roosevelt shows that if the market is confident in the economy, it will be bullish for the stock market; if not, it will be bullish for gold.
A report points out that in the past 12 months, US government debt has increased by $2.1 trillion, accounting for 7.1% of GDP. Regardless of whether Harris or Trump ultimately becomes the US president, it will not change the trajectory of expanding government debt and increasing deficits in the United States, so the market will turn to gold under the safe-haven sentiment.
Hartnett also predicted that the best 'reverse trade' in the 'first rate cut trade' would be commodities, namely oil and nonferrous metals. He pointed out that under the scenario of a 240-basis-point rate cut by the Fed in the next 12 months, commodities are the only asset class priced for a hard landing.
Taking the oil market as an example, the current market sentiment is worse than during the 2008 global financial crisis, the European sovereign debt crisis, and the peak of the global COVID-19 pandemic.
Overall, in the context of gradually loose monetary policy, Hartnett is bullish on 3Bs: gold, US bonds, and market breadth.
The report also added that the risk of a 'hard landing' in the current economy is underestimated. Even if the Fed lowers interest rates by only 25 basis points during the first rate cut, it is expected to cut rates significantly afterwards, and US bond yields are expected to further drop to the level of 3%. Therefore, the most advantageous operation now is to 'sell the first rate cut' and wait for a better timing to enter the risk asset market.
Hartnett also mentioned that the decision on whether the US bond yields will rebound or fall will depend on the next employment report, specifically whether the September nonfarm payroll number is below or above 0.1 million people, which will largely eliminate uncertainty.
Before that, risk will rotate rather than differentiate or retreat.
Editor/Jeffy