Michael Hartnett, Chief Strategist at Bank of America, wrote in his latest Flow Show report that according to the latest presidential election winning probabilities, Trump is at 61%, and Harris is at 49%.

But more relevant to the market is the push where the probability of the Republican Party winning the US general election has surged from 20% to 33%, resulting in a current 44% chance of a "sweep" in this election (according to oddschecker.com). Although the market may not be too concerned about whether Trump or Harris can win in the event of an election deadlock, it will certainly care whether the Democratic Party or the Republican Party can make significant gains in Congress, and now the probability of the Republican Party winning both the House and Senate is the highest since Biden dropped out of the race.

Hartnett then shifted his focus to the latest fiscal storm in the United States, writing that in 2019 US government spending was 4.5 billion USD, and now it is 69 billion USD; US government debt was 232 billion USD in 2019, and now it is 354 billion USD. This also explains the structural bear market in government bonds most clearly: as neither presidential candidate has hopes of achieving budget balance, bonds will continue to be in a structural bear market.

While the US is stealthily stimulating the economy by continuously injecting large amounts of debt, other countries are also striving to catch up. A quick scan of Hartnett's core focus - weekly capital trends, reveals an interesting highlight: as investors withdraw funds from cash, technology stocks, and emerging markets, there is a sharp increase in inflows to gold and cryptos: with 23.2 billion USD flowing into bonds, 21.4 billion USD into stocks, 1.6 billion USD into cryptos, 1.2 billion USD into gold, and 17.4 billion USD into cash.

Hartnett points out that the 2016 Republican Party 'sweep' brought sweetness to the stock market, oil, and the US dollar, but bitterness to bonds and gold. However, this seems to be out of sync with the current market trend, especially for gold and oil. According to historical data, the former should be lower, and the latter should be higher, but the current reality is quite the opposite.

Hartnett explains these two anomalies. He writes that the price of gold is now around $2720 per ounce, hitting a historic high, far above the historical peaks of $2000 per ounce in 2020 and $1900 per ounce in 2011. The gold bull market is being driven by policy and inflation: the 2020s are a decade of US and global fiscal surplus, as well as a decade of technology, trade tariffs, and protectionism.

Hartnett points out that the Federal Reserve is determined to cut real interest rates in the coming quarters, requiring investors to hedge against the threats of inflation and US dollar devaluation. This strategist at Bank of America concludes: gold will surpass $3000 per ounce.

Unlike gold, which hit a new historical high, the oil price of $70 per barrel is much lower than the previous historical peaks (such as $124 per barrel in 2022 and $145 per barrel in 2008). Oil prices are driven by economic growth and geopolitics: 2024 was a year of global manufacturing recession, and investors are optimistic about the easing of geopolitical tensions in Russia/Ukraine, the Middle East, and/or the next few quarters.

Hartnett pointed out that the future decline in oil prices over the next few quarters means that the US's advantage relative to the international market is weakening, as compared to Europe and Asia. The US is very biased towards geopolitical conflicts, while Europe and Asia are energy-importing countries. A decrease in oil prices results in a rate cut.