Bank of America believes that the U.S. military action against Iran will be short-lived, as Trump does not want U.S. RBOB Gasoline prices to exceed $4 per gallon. Due to the market broadly shorting the dollar, 'the most painful Trade this summer is to go long on the dollar', and global capital allocation is gradually shifting from the U.S. to the Eurasian markets. Gold remains the best-performing asset in 2025, but Bank of America points out that high-net-worth clients are seriously under-allocated in Gold.
As the conflict between the U.S. and Iran escalates driving up oil prices, Bank of America's chief investment strategist Michael Hartnett expects that American military intervention will be brief.
According to reports from CCTV and Global Times, on June 21 local time, U.S. President Trump posted on his Social Media account 'Truth Social' that the U.S. has completed attacks on Iran's Fordow, Natanz, and Isfahan nuclear facilities, stating that 'Iran's Fordow nuclear facility no longer exists.'
According to news from the Wind Trading Desk, Bank of America's chief investment strategist Michael Hartnett stated in a recent report that even if the U.S. takes military action against Iran, it will be short-lived, as Trump does not want U.S. RBOB Gasoline prices to exceed $4 per gallon.
He expects Trump to continue pressuring Russia and Saudi Arabia to increase oil production in exchange for not implementing sanctions, providing military protection, and access to artificial intelligence technology.
According to Hartnett's observations, Wall Street has become accustomed to buying on dips during geopolitical crises, and the current market shows a certain level of complacency regarding rising oil prices. He noted in discussions with European clients that any 'deterrent' military actions by the U.S. may be temporary.
Amid the turbulent situation in the Middle East, WTI Crude Oil futures prices have risen about 10% in the past week, while Brent Crude Oil futures have increased by 18% since June 10, reaching a nearly five-month high of $79.04 last Thursday.
The dollar bears are crowded, and painful trades may unfold.
In global asset allocation, Hartnett warned in the report that due to the general short position on the dollar in the market, "the most painful trade this summer is going long on the dollar."
According to Bank of America data, the historical decline in a real dollar bear market typically ranges from 20% to 40%, while "structural bull markets in stocks are always accompanied by bull markets in currencies." Hartnett believes the best signal for Europe and Asia entering a structural bull market is the ability of corporate sectors to withstand the impacts of Forex appreciation.
Global capital allocation is shifting towards the Eurasian markets.
Hartnett's communication with European clients shows that the exception theory regarding the American market has been shaken. According to Bank of America data, year-to-date, European stocks have risen by 20% in dollar terms, China by 15%, while the US has only risen by 2%. Hartnett points out that America's share of global stock capital inflows has dropped from 72% in 2024 to 53% in 2025.
However, Bank of America also points out that many people are "emotionally bearish" on the US, but very few are "actually acting bearish" on the US. The US stock market has still received a massive inflow of $45.4 billion year-to-date, setting a new annual record.
On a geopolitical level, Hartnett pointed out that the US military intervention in Iran will reinforce the consensus on a long-term bear market for US Treasuries, as Trump has limited options for reducing $7 trillion in government spending. Considering that $4 trillion is allocated for mandatory spending on Social Security and Medicare, Trump can only choose to cut $1 trillion in defense spending, $1 trillion in discretionary spending, or $1 trillion in interest payments.
"That's why Trump is now actively 'encouraging' Powell to cut interest rates," Hartnett stated.
Private clients are severely under-allocated in Gold.
Despite Gold's impressive performance, data from Bank of America reveals that high-net-worth investors still significantly under-allocate this asset class.
According to Bank of America's Statistics, in the management of $3.9 trillion in private client assets, the "Big Seven" U.S. Stocks account for 14.8%, U.S. Treasuries (2-30 years) account for 3.6%, International Stocks account for 3.4%, while Gold accounts for only 0.4%.
The latest weekly Capital Trend data confirms the lagging situation of high-net-worth clients. Gold experienced its largest Inflow in 8 weeks (approximately $2.8 billion) in the past week, with an annualized inflow reaching a record $80 billion.
Meanwhile, Emerging Markets Bonds just recorded the second-largest Inflow on record ($4.8 billion), with a four-week inflow reaching a new high since February 2021.
Editor/Jeffy
