Bank of America's Hartnett: Haven't seen the "bottoming signal" yet. How to interpret "bottoming trading", including gold?

Chief Investment Officer of Bank of America Michael Hartnett announced that the bank's long-standing bull and bear indicator sell signal has officially ended, but he also warned that a true "buying opportunity signal" has not yet emerged in the market, and investors should not rush to buy. In the latest Flow Show report, Hartnett pointed out that with oil prices exceeding $100 per barrel, 30-year US Treasury yields rising to 5%, and the S&P 500 falling below 6600 points, a stage of policy panic has begun. The Bank of America bull and bear indicator has dropped significantly from 8.4 to 7.4, reaching its lowest level since July 2025, signaling the official end of the sell signal that began on December 17th of last year. However, he emphasized that the timing for contrarian buying is not yet ripe until true bullish surrender or macro panic signals (such as GDP and earnings per share expectations being significantly revised down) appear. In terms of asset allocation direction, Hartnett's core view is gradually becoming clear: a bear market for the US dollar will emerge again, while a bull market for gold and international stocks will restart. While the sell signal has ended, it is still too early to "buy the dip." The Bank of America bull and bear indicator plunged from 8.4 to 7.4, reaching its lowest level since July 2025, due to factors such as deteriorating global stock index breadth, outflows from high-yield bonds and emerging market debt funds, and widening credit spreads for high-yield bonds and AT1 bonds. These changes signify the official end of the sell signal that began on December 17th of last year. The Bank of America bull and bear indicator has triggered a reverse "sell signal" 32 times since 2002. Historical data shows that within three months after the end of such signals, the average return of the S&P 500 and MSCI Global Stock Index (ACWI) is only 1%. This means that the end of the sell signal itself does not constitute a strong buy drive, and the market is still in a phase of uncertainty, so it is still too early for a "full-scale dip." Hartnett also outlined the "painful trades" in the US stock market in the first quarter: short-term government bonds outperforming AI supercomputing bonds, the US dollar outperforming Bitcoin, crude oil outperforming gold, energy stocks outperforming technology stocks, and large-cap stocks underperforming small-cap stocks. At the same time, 67% (336) of the S&P 500 components have fallen by more than 10% from their highs, and 28% (143) have fallen by over 20%. Since optimism in liquidity and AI capital expenditure peaked at the end of October last year, structural damage beneath the index has become quite significant. How will the "buying opportunity signal" be triggered? What are the key thresholds? Hartnett detailed the technical path from a sell signal to a buy signal. He pointed out that the first indicator that may trigger a "buy signal" is the Bank of America global breadth rule - when 88% of global stock index net values simultaneously fall below the 50-day and 200-day moving averages, the buy signal is triggered. As of last Monday, this indicator reading was at -39%, and it may further decline after Friday's close. Hartnett estimated that to trigger this buy signal, the Asia-Pacific stock market needs to fall by about 2%, the emerging markets need to fall by around 3%, and Latin America needs to fall by about 14%. The S&P 500 has not yet officially entered the "correction range" (a drop of 10% to 20% from highs), with the threshold corresponding to around 6300 points, and as of last Friday's close, was less than 100 points away from this key level. In other words, the market is still a distance away from a true technical buy signal. Hartnett clearly advises to "not rush, not be greedy," and emphasizes that a true contrarian buying opportunity requires signs of "bullish surrender" and macro data panic signals, which are currently not present. Gold: A core beneficiary of the US dollar bear market and policy shift Hartnett's view on gold is particularly worth noting. He warns that a bear market in presidential credibility often accompanies a US dollar bear market - similar patterns have appeared during the Nixon, Carter, and George W. Bush administrations. He further points out that if Trump's credibility is structurally damaged due to the situation in Iran, his ability to boost Wall Street through verbal intervention and attract foreign direct investment into the US will weaken. In this scenario, the US dollar bear market will return, and the bull market in gold and international stocks will restart. Looking longer term, Hartnett believes that if the policy path shifts to "AI = universal basic income = yield curve control," both gold and Bitcoin will benefit from this structural policy change. Hartnett's baseline scenario: Policy panic provides a trading window Hartnett outlines three market scenarios in the report. In a bear market scenario, credit spreads continue to widen, stocks continue to decline until the threat to the consensus of 19% global earnings growth no longer rises, and if the Iran war cannot end soon, the market will shift from a prosperous trade in the fourth quarter to a stagflation trade in the first quarter, ultimately transforming into a recession trade in the second quarter, when going long on US bonds and shorting cyclical stocks becomes the dominant logic. In a bull market scenario, the key catalyst is relaxed financial conditions, including global policy coordination to suppress oil prices, systemic risk mitigation in private credit systems, and steepening yield curves. Hartnett believes that the best direction for contrarian long trades in the second quarter is in software, private equity, and consumer finance - these three sectors have significantly deviated from their 50-day and 200-day moving averages. In Hartnett's baseline scenario, policy panic is a high-probability event to avoid an economic downturn. Based on this premise, he believes the best trades are to go long on the steepening yield curve and consumer stocks. At the same time, as the US dollar bear market resumes and global fiscal expansion (especially in Europe with massive spending on defense and energy), the bullish trend in gold and international stocks will opportunistically return. Hartnett concludes with two market idioms to concisely sum up the current environment: The most uncomfortable trends in the market are either driven by private credit pushing to new highs, or by semiconductors leading to new lows. In a strong market, when the index falls below the 200-day moving average, investors often choose to cover their shorts; but in a weak market, this is when they sell off their long positions. This article is selected from "Wall Street View," by Zhao Ying, edited by GMTEight: Zhang Jinliang.