Bank of America Chief Strategist Warns: U.S. Stock Market Rebound May Be Nearing Its End, with $24.8 Billion Withdrawn Over the Past Four Weeks, Recommends Shifting to Bonds and International Stocks as a Hedge

Michael Hartnett, Chief Investment Strategist at Bank of America, warns that the rebound in U.S. stocks might be coming to an end, as there has been a net outflow of $24.8 billion from the U.S. stock market over the past four weeks, marking the largest outflow in two years. Hartnett suggests that investors consider moving to bonds and international stocks by 2025 to address the risks of slowing U.S. economic growth, uncertainty in trade policies, and potential asset price adjustments.

US Stock Rebound Momentum Weakens, Market Enters "Buy the Rumor, Sell the News" Phase

Since April 9, 2025, when President Trump announced a temporary suspension of some tariffs on China, the S&P 500 index has risen by 14%, reflecting strong optimism about easing trade policies. However, Hartnett points out that this rally is primarily based on the typical "buy the rumor, sell the news" trading logic, and when favorable policies are actually enacted, the market may experience a correction due to previous gains being overstretched.

Despite the recent strong performance of the stock market, Hartnett reminds us that the S&P 500 index is still down 3.7% for the year, significantly lagging behind other major international markets. He believes that the US stock market is currently in the "late stage of a structural bear market," with both valuations and growth potential lacking compared to international markets.

Fund Flows Indicate a Shift in Investor Attitude

Hartnett's view is supported by fund flow data. According to EPFR Global statistics, the US stock market saw a net redemption of $24.8 billion over the past four weeks, marking the largest outflow in a single week in two years. This data indicates that despite the apparent rebound momentum in the market, investors have actually begun withdrawing from the US stock market and turning to other asset classes.

Meanwhile, international stock markets have attracted more capital inflows. Hartnett points out that this trend reflects investors' concerns about the US economic and policy outlook and their search for more defensive and growth-oriented investment targets.

2025 Asset Allocation Recommendations: Favor Bonds Over Stocks, Focus on International Markets

In light of potential economic and policy risks in 2025, Hartnett offers clear asset allocation recommendations. He advocates for "favoring bonds over stocks" and prefers international markets over US domestic assets in stock allocation. Specifically, he suggests investors consider the following assets:

Bond ETFs: such as SPLB (Long-Term Investment Grade Corporate Bonds), BND (Total Bond Market), BSV (Short-Term Bonds)
International Stock ETFs: such as ACWX (Global Stocks Excluding the US)
Gold ETFs: such as GLD, to hedge against a weakening dollar and potential inflation

Additionally, Hartnett recommends holding five-year US Treasury bonds (US5Y) until potential Republican tax reform policies are formalized. He also advises maintaining a short position on the dollar until the Federal Reserve resumes rate cuts.

Increasing Economic and Policy Risks, Rising Market Vulnerability

Hartnett notes that US nominal GDP has grown by 50% over the past five years but may face significant slowdown in the future. He predicts that the policy environment in 2025 will be more challenging, with the Federal Reserve possibly halting rate cuts and federal government spending potentially decreasing by about $50 billion, further suppressing economic momentum.

In terms of trade policy, although effective tariff rates may decrease, potential tariffs on China (30%) and the EU (10%) could still lead to over $600 billion in tax increases, placing pressure on businesses and consumers. Hartnett warns that the market has already priced in expectations for trade agreements and tariff reductions, and if policies fall short of expectations when implemented, it could trigger market volatility.

Global Debt Reaches New High, Asset Price Collapse Risk Cannot Be Ignored

Hartnett specifically warns that global debt has, for the first time, surpassed $324 trillion, a historic high that significantly increases the market's sensitivity to asset prices. He points out that if asset prices experience a sharp decline, it could trigger a chain reaction of deleveraging, leading to widespread market chaos.

In this context, Hartnett emphasizes that investors should place greater importance on the defensiveness of asset allocation and closely monitor policy changes and market sentiment turning points.

Market Sentiment Indicators Show Decline in Risk Appetite

From market sentiment indicators, the VIX volatility index has recently fallen from a high of 60 to 22, indicating a decrease in market panic, but it has not yet returned to an optimistic range. Meanwhile, CNN's Fear and Greed Index has risen from an extreme fear level of 4 to 43, still within a neutral to conservative range.

These indicators reflect that although optimism about trade policies has driven a short-term rebound, overall risk appetite has not fully recovered, and investors remain highly cautious about future uncertainties.

Bank of America Chief Strategist Warns: U.S. Stock Market Rebound May Be Nearing Its End, with $24.8 Billion Withdrawn Over the Past Four Weeks, Recommends Shifting to Bonds and International Stocks as a Hedge

Key Updates

On May 12, 2025, U.S. stock futures rose across the board: Dow futures, S&P futures, and Nasdaq futures rose simultaneously in the Asian trading session.

On May 12, 2025, U.S. stock index futures rose, with the Dow Jones Industrial Average at 41,770, the S&P 500 climbing to 5,759.75, and the Nasdaq 100 reaching 20,542.

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