Bank of America Strategist: This Year's "Peace Trade" Outperforms "Conflict Trade"; Investors Should Watch Three Key Indicators

BlockBeats News, May 19th, Bank of America strategist Hartnett's prophecy regarding "Buy the rumor, sell the news" has partially come true: Last Friday, he predicted that the S&P 500 Index would skyrocket after the trade agreement framework was announced, and indeed, the index surged by 5%.

As the market fluctuated in tariff headlines (or saw consecutive surges), Hartnett has set his sights on the "next big opportunity." He reached a conclusion by analyzing the best and worst-performing assets of 2025: the performance of "peaceful trades" in 2025 is superior to "conflict trades." Hartnett reminds investors to closely monitor three key levels: a 5% yield on the 30-year U.S. Treasury bond, a 100-point U.S. Dollar Index, and the 5000-point Philadelphia Semiconductor Index (SOX).

If the U.S. bond yield and the U.S. dollar show the combination of "rising yield, falling dollar" again (especially if Trump fails in the long-term U.S. bond market), U.S. stocks may experience the next round of selling. However, Hartnett believes that the 5% yield is still the current line of defense (breaching it would require a retreat). At the same time, aversion to long-duration assets has reached its peak—the ratio of the Biotechnology ETF (XBI) to the Broker Dealer ETF (XBD) has dropped to the lowest level since October 2007, highlighting the deep-rooted consensus of "buy anything but bonds."

In the report, Hartnett predicts that emerging market stocks will become the core engine of the new bull market, supported by three mainstays: a weakening U.S. dollar, a peak in U.S. bond yields, and the drive of the Chinese economy.

Despite the improvement in market breadth (84% of MSCI index components have crossed above the 50-day/200-day moving averages, approaching the 88% oversold threshold), Bank of America's "Bull & Bear Indicator" remains at 3.6, indicating that sentiment has not yet overheated.

Hartnett warns that bond yields will reveal the final outcome of U.S. policy: will it be a replay of the 1970s "inflationary peace dividend" (stagflation, protectionism), or the 1990s "deflationary peace dividend" (globalization, central bank independence)? He leans toward a scenario where U.S. bond yields decline and deflation occurs in 2025, but Moody's removal of the U.S. AAA rating has cast a shadow over the long-term bond market. (Jinse)