Bank of America proposes a "reverse trading" strategy: betting on bonds and Chinese assets, shorting AI bonds, and being vigilant about dollar risks.

Bank of America Securities recently launched a series of "contrarian trading" strategies, believing that as some of the most deeply entrenched investment narratives in the market begin to lose momentum, these reverse positions are expected to generate excess returns. Bank of Americas contrarian approach spans multiple areas, including bonds, the dollar, artificial intelligence, and the upcoming U.S. midterm elections, with several trades aimed at profiting from the current reversal of mainstream investor positions. In Bank of Americas contrarian "ABB" trade, the bank clearly opposes the current market consensus of "Anything But Bonds." The bank is optimistic about neglected long-duration assets, including real estate investment trusts (REITs), biotech ETFs (XBI), regional bank ETFs (KRE), and small-cap stocks. Bank of America believes that if bond yields experience another significant increase, it could cause increasingly severe damage to Wall Street and the overall U.S. economy, potentially forcing policymakers to intervene. The bank suggests that this outlook could create an environment for long-duration assets to regain market favor. The bank holds a bullish stance on the Hong Kong real estate sector, believing that the stabilization or recovery of the Chinese real estate market may provide opportunities in this field, which is still deeply avoided by global investors. Bank of Americas "ABD" trade acknowledges a widespread "Anything But the Dollar" sentiment in the current market but contends that gold remains the purest tool to express views on the continued depreciation of the dollar, asset inflation, and potential pressures in the bond market. The bank also points out that changes in the geopolitical landscape of the 2020s, along with the U.S.-Iran "economic war," may support gold by driving demand for safe-haven assets and hedging against sanctions. In the field of artificial intelligence, Bank of America has adopted a more nuanced contrarian position. Although the markets long-term consensus on AI stocks remains firmly bullish, the bank recommends investors consider a strategy of "shorting AI bonds," believing that even if the U.S. government can influence or suppress yields, a meaningful reduction in capital costs will likely require deflation or recession. At the same time, Bank of America advises constructing a barbell strategy around AI stocksincreasing holdings in commodity and natural resource companies that will benefit from the tremendous energy and material demands brought about by the U.S.-China AI arms race. Bank of America is also positioning itself for potentially more disruptive outcomes in the November U.S. midterm elections. Although the market consensus does not indicate a Democratic sweep, the bank suggests hedging this scenario by shorting financial stocks. Bank of America notes that if the Democrats take the Senate while the Republicans lose the Texas governorship, U.S. stocks could drop by more than 10%, and the dollar and bond yields may weaken before the end of the year. The bank cites data showing that former President Trumps overall approval rating stands at 39%, with support on economic issues at 36% and inflation issues at only 30%, all significantly below pre-war averages (46%, 42%, and 38%, respectively). This suggests that as the midterm elections approach, the importance of political risk to the market may be increasing.