The Blubber

Bank of America (NYSE: BAC) is advising investors to take a bearish position on the S&P 500, arguing that market conditions will remain unfavorable for equities until two key developments occur: a significant interest rate cut by the Federal Reserve and a resolution—or at least a pause—in the U.S.-China trade dispute.

Michael Hartnett, the bank’s chief investment strategist, said the U.S. is no longer the primary driver of global economic growth. He described this as the end of "U.S. exceptionalism" and the beginning of a broader shift, with global capital starting to move away from American markets.

Until monetary policy adjusts, Hartnett recommends holding short-term government debt such as 2-year Treasury notes and maintains a negative outlook on the S&P 500 until it falls closer to 4,800. If policymakers step in aggressively, he sees a potential opportunity to reenter risk assets—particularly if any coming recession is mild and short-lived.

Bank of America also highlighted a notable shift in foreign investor behavior. Currently, non-U.S. investors hold roughly 33% of U.S. Treasuries, 27% of corporate bonds, and 18% of American equities—equivalent to around $8.5 trillion, $4.4 trillion, and $16.5 trillion, respectively.

Last week, U.S. Treasuries saw record weekly inflows of $18.8 billion. In contrast, foreign investors withdrew $6.5 billion from U.S. equities and $3 billion from corporate bonds, while redirecting $600 million into government debt—signaling a growing preference for safety amid uncertainty.