The recent stock market rally has fed off optimism over impending trade deals but will falter as the deals are completed, in the view of Bank of America chief investment strategist Michael Hartnett. Over the past month, equities have ridden a bumpy road higher, dependent on ever-changing positions from President Donald Trump on tariffs. Mostly, investors have taken a more optimistic position that the final duties won’t be as draconian as those Trump initially proposed on April 2. That’s generally the right read, but is likely to switch once the deals are finalized, Hartnett wrote in his weekly analysis of money flows in capital markets. “Oversold equities have correctly front-run Q2 trade deals/lower tariffs,” the strategist wrote. “We expect ‘buy the expectation, sell the fact,’ stocks fade into the trade deals.” The S & P 500 has reversed losses suffered after Trump announced across-the-board 10% tariffs on April 2 and individualized “reciprocal” duties. Over the past month, the large-cap index is up nearly 4%, while the Nasdaq Composite, which is weighted more toward tech names, has risen closer to 5%. .SPX .IXIC 3M line S & P 500 and Nasdaq performance Despite the initial relief that the tariffs likely won’t be as high as originally proposed, Hartnett estimates that they still will amount to a tax of more than $600 billion on imports. From an investing standpoint, Bank of America recommends shorting the U.S. dollar until the Federal Reserve starts lowering interest rates but holding a long position on 5-year Treasurys until the budget talks in Washington yield an extension of the 2017 tax cuts. “We believe bonds are in early-stage structural bear market that began in 2020, commodities are in early-stage structural bull market, led by gold, and US stocks in late-stage structural bear market relative to International stocks,” Hartnett wrote.
