Source: Wall Street See
Author: Huang Wenwen

Since Trump's victory, global stock markets have shown significant divergence, with the usa stock market rising sharply and a market cap increase of 1.8 trillion dollars, while emerging markets lost 500 billion dollars, and the EAFE (europe, australasia, and far east) market evaporated by 600 billion dollars...

However, recently, american financial strategist Michael Hartnett stated in his latest report that with the tightening of usa financial conditions, he suggests investors adjust their portfolios before the January inauguration, focusing on usa treasury bonds, china and europe stock markets, and gold.

The risk before the inauguration is rising, and financial conditions are tightening.

Currently, the market is preparing for Trump's 'radical policies', showing 'radical asset movements'. Hartnett stated that investors are prepared for the 'usa risk' on inauguration day, but even if the stock market continues to rise, usa financial conditions are tightening. As the fed rate cuts are priced in, cracks in leverage (gold, small cap stocks, risk parity, emerging markets) have already begun to show, and any rise in long-term interest rates signifies a risk reversal.

According to the american financial bank's November global fund manager survey, investors have raised their expectations for usa growth and inflation, leading to a shift in belief about a large increase in usa stocks and a pivot towards small cap stocks.

Hartnett stated that when the Trump 2.0 trade shows cracks, the moment of "TINA (There Is No Alternative, which among many American stock investors refers specifically to U.S. stocks) Turner" will arrive:

"After the election, there are no other trading options; one can only go long on the dollar, go long on American stocks, and short U.S. bonds; however, prior to the inauguration day, a further tightening of American financial conditions will change the trade."

"Strong" global macro data may be one of the driving forces behind the tightening of American financial conditions. Hartnett pointed out that this is because companies are preemptively responding to tariffs. In October, China's export growth rate reached its fastest pace since July, imports at California ports surged, U.S. unemployment claims dropped significantly, and small business pessimism is about to reverse...

And all of this occurred just as U.S. inflation hit bottom, with the core inflation rate in the USA setting a new low of 3%.

Allocate to U.S. bonds, Central and Eastern European stock markets, and gold.

In investing in "TINA Turner," Hartnett believes that even though currently there are no asset allocators increasing their shareholding in bonds and international stocks, he suggests that asset allocators entering the first quarter of 2025 should lean towards:

1. Buy U.S. bonds if the yield rises to 5%.

Hartnett believes that the Federal Reserve will indicate its determination to curb inflation expectations in the first quarter of 2025 by not lowering interest rates, while U.S. bonds will force the Trump administration to ease tariffs. He stated:

For the new government, allowing a second wave of inflation would be political suicide, although it is difficult to reverse the long-term trends of usa government debt and spending... However, the awareness of the new government regarding the 36 trillion dollars of usa debt, 7 trillion dollars of usa government spending, and 1 trillion dollars of usa interest expenditure indicates a reduction in fiscal spending.

2. Buy stocks from china and europe before the inauguration day.

Hartnet stated that he believes that central europe will actively respond to the 'usa first' tariff policy. Thus, relative to usa, asia and europe have lower interest rates, cheaper mmf, and lower oil prices, which will significantly relax financial conditions.

3. Buy gold.

Hartnet indicated that a demographic structural turning point is approaching, and the world dependency ratio will reach a low of 53% in 2028, marking the peak of a 'de-inflation' demographic structure; coupled with the enormous energy demand of ai, this implies that gold (and cryptos) remains the best long-term hedge against inflation.

Editor/Jeffy