Bank of America's Hartnett: The era of "buy everything except the dollar" begins with the start of a weak dollar cycle.

Bank of America strategist Michael Hartnett released a new research report pointing out that 2025 will be a major watershed for global market investment themes. He expects that the trading logic dominated by "Anything But Bonds" (ABB) in the past few years will come to an end, and will be replaced by a new paradigm of "Anything But The Dollar" (ABD). The market is closely watching the Fed's interest rate meeting next week and generally expects a rate cut of at least 25 basis points. Hartnett pointed out that the current market reaction shows that investors believe that the Fed's rate cut this time is "credible" and is taking action against the backdrop of accelerating economic growth in the United States. This expectation has driven the rebound of risk parity strategies, breaking through the high point of 2024. Since the beginning of this year, major asset performance has shown significant differentiation. Gold leads the way with a staggering 38% increase, far exceeding the performance of global stocks (25%) and Bitcoin (23%). In contrast, the US dollar and oil are the biggest losers, falling by 10% and 13% respectively since the beginning of the year. This performance difference provides support for Hartnett's assessment of a weak US dollar. Hartnett quoted a mainstream view in the market: "The Fed is cutting rates at market highs... I will continue to be bullish on stocks until we start worrying about midterm elections next spring." Goodbye to the era of "Anything But Bonds" Hartnett believes that the core logic supporting the reversal of "ABB" trading is that the nominal GDP growth in the United States is about to peak. Since 2020, the US nominal GDP has grown by an astonishing 54%, the strongest growth since World War II. However, he predicts that this growth momentum will peak in 2025, with an annual growth rate slowing from 6% to 4% due to weakening government spending and labor market. When nominal growth peaks, it usually means that bond yields will also peak. Therefore, Hartnett judges that the brutal bear market in bonds that has lasted for several years will come to an end in 2025. With the end of the "ABB" trading cycle, assets that have been overlooked by the market in favor of interest rates, such as small-cap stocks and value stocks, will benefit. Data shows that the rolling return rate of small-cap stocks relative to large-cap stocks is approaching the lowest level in nearly 100 years, indicating a huge potential for recovery. Embrace "ABD" and international markets With the end of the era of "ABB," Hartnett has put forward a new theme for 2025: "ABD" (Anything But The Dollar). He believes that a weak US dollar, the end of deflation in Europe and Japan, and fiscal expansion in Europe, America, and Asia all provide reasons to be bullish on non-US assets. The strategist explicitly states that investors should "be bullish on international markets." In this context, the strategic value of gold is becoming increasingly prominent. Hartnett states that gold is a hedge against the risks of "lawlessness and dollar depreciation." Although a large amount of funds flowing into gold (the fourth largest weekly inflow ever recorded) shows that the bull market in gold has shifted from "quiet" to "noisy" in recent times, he expects the price of gold to continue to rise. In addition, he recommends investors hedge and balance their risk exposure in the US AI bubble by investing in Chinese tech stocks. AI Bubble and Blind Spots in the Credit Market Although AI remains the brightest spot in the foreseeable future for the market, it also carries risks. Hartnett points out that capital expenditure funding for the AI bubble is rapidly expanding. The capital expenditure for super-scale data centers as a percentage of their cash flow has soared from 35% in 2023 to 72%. This means that the growing capital expenditure will increasingly rely on debt (especially private credit) for financing. However, an anomaly is that the credit spread in the tech industry is nearing its narrowest level since 1997. Hartnett analyzes that this indicates that credit investors are currently not concerned about the risks of "burning money" in the AI industry, and the market seems to be turning a blind eye to risks. Triple Game: Policy, Profit, and Politics Hartnett uses his classic "PPP" (Policy, Profit, Politics) framework to analyze the current situation. Policy: The market generally believes that the Fed's rate cut is "preemptive," which has led to a narrowing of credit spreads and a rise in interest-rate-sensitive stocks such as banks and small caps. However, Hartnett also gives a warning signal: if credit spreads (such as the IG CDX index exceeding 60 basis points), bank stocks (such as the BKX index falling below 140 points), and small-cap stocks (such as the RTY index failing to break through 2400 points) reverse, it may indicate that the Fed is actually "behind the curve," and the economy will further slow down. Profit: The weak labor market (with an average monthly increase of only 64,000 jobs in the past 6 months, the weakest since 2020) is being offset by strong "K-shaped" wealth effects. According to estimates from Bank of America Private Client data, after adding $9 trillion in 2024 and another $3 trillion in the first half of 2025, American households' equity wealth increased by another $3 trillion in the third quarter of 2025. Politics: Populism is on the rise, but populists lack patience. For the United States, high inflation, high unemployment rates (youth unemployment rate rising from 4.8% in April of 23 years to 9.4%), and huge wealth disparity are all social risks. This has led Hartnett to continue referring to the early 1970s "Nixon rerun" script - reducing unemployment rates through "prosperity" policies while controlling inflation through price controls. This policy combination will make it difficult for the US dollar to receive support for the "American exceptionalism" and continue to push up the prices of gold and cryptocurrencies. This article is reprinted from "Wall Street News," author: Zhang Yaqi; Editor of GMTEight: Wang Qiujia.