BofA's Hartnett Says Stock Calm Signals Confidence in Central Banks

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3▲0 ▼1Impact / 5
Summary · why it matters

Bank of America strategists led by Michael Hartnett say the stock market's muted reaction to a new global tightening cycle is a vote of confidence that central banks will restore policy credibility. Since Federal Reserve official Kevin Warsh turned hawkish at Jackson Hole, the 10-year Treasury yield has risen 60 basis points and the dollar has gained 2%, while stocks have dipped just 1%. Central banks worldwide are scrambling to restore credibility after 60 hikes globally this year versus just 20 in 2025, and the Magnificent Seven breaking out to new highs right after the Fed's recent hike suggests markets believe the effort will work, though the strategists warned this marks a genuine regime shift toward tighter policy. BofA also flagged elevated risk in the bond market's collateral system, saying a 35% two-day jump in the MOVE Index keeps the risk of a sudden deleveraging event high, with a break in global financials below $125 combined with the MOVE index above 125 signaling a broader risk-off event. Hartnett laid out three scenarios into year-end: a bull case he called "Peace, Goldilocks, and Gridlock," a bear case named "Bonds and Voters," and a base case, "Debasement and Duration," in which he favors staying long commodities and EM assets and nibbling at "peak yield" plays including 30-year Treasuries, the Magnificent Seven, biotech, small caps, REITs and Hong Kong property. Weekly flows showed a rotation out of stocks and into safer assets, with bonds drawing $17.3 billion, cash $11.6 billion, crypto $3 billion and gold $2.3 billion, while $10.2 billion exited stocks, even as global equities remain on pace for a record $1.2 trillion inflow in 2026, well above the prior record of $949 billion set in 2021.

Impact on assets 3

Financials▲ · 1 stocks
Bank of America Corp
BAC
± MixedCapitalrelevance

BofA strategists' note flags bond-market deleveraging risk and favors commodities/EM, but no direct financial event for the bank itself.

Artificial Intelligence▲ · 1 stocks
NVIDIA Corporation
NVDA
± MixedMonetaryrelevance

Magnificent Seven, including NVIDIA, cited as breaking out to new highs after the Fed hike, signaling confidence in central banks; only a passing mention.

Others▼ · 1 stocks
％United States Government Bond 10Y
US-10Y
▼ NegativeMonetaryrelevance

10-year Treasury yield has risen 60bp since Warsh turned hawkish, and BofA favors 'peak yield' plays, implying higher yields (lower bond prices).

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