Wall Street rises as materials and crypto stocks offset continued bond sell-off
Investing.com -- One threshold in the bond market, if breached, could "open the door to doom", according to Bank of America’s top strategist Michael Hartnett.
In his weekly "Flow Show" report, Hartnett centered on the "boom loop" — a self-reinforcing cycle in which policymakers counter deglobalization, inequality, and populism with maximum government spending, up 60% since 2020 and set to rise another 15% in the proposed fiscal 2027 budget.
The result is a U.S. nominal GDP surge of 75% in just seven years, from $20 trillion at the COVID low in 2020 to a projected $35 trillion by 2027, the kind of environment where stocks and commodities thrive, and bonds and the dollar struggle.
"Stocks & commodities love nominal booms; bonds (steeper curve) & U.S. dollar not so much," Hartnett said in the note.
The boom, however, has a key pressure point. Hartnett highlights the 5% level on the 30-year Treasury, which he calls the "Maginot Line," which he expects to hold for now.
The administration is actively working to maintain demand for U.S. Treasuries, he argues, while also under pressure to reverse the "deflation" of Trump’s inflation approval, now at just 29%, barely above Biden’s all-time low of 28%.
Should the level break, history offers a grim precedent, with JGB yields jumping 230 basis points in 1989, U.S. Treasuries 260 basis points in 1999, and China 150 basis points in 2007, each marking the end of a boom, Hartnett noted.
"Should 5% Maginot Line break badly (booms/bubbles always end with sharp jump in yields), then the door to doom starts to open," he wrote in the note.
His preferred trades tilt toward what he calls "the Cs" — commodities, chips, consumers, and China — while bonds face steeper curves and the dollar remains under pressure.
In recent flows, stocks drew $23 billion in the past week and bonds pulled in $19.9 billion, their 53rd consecutive week of inflows, while cash shed $29.5 billion and gold posted its first outflow in six weeks at $1.2 billion.
Japan equity funds saw their biggest weekly inflow since May 2013 at $6.7 billion, while China equities suffered an $11.3 billion outflow, the largest since January 2026.
U.S. equities attracted $19.3 billion, their fifth straight week of inflows, with the bulk going to large caps.
Within fixed income, investment-grade bonds drew $8.8 billion, their biggest haul in eight weeks, and EM debt pulled in $3.6 billion for a third consecutive week of inflows.
BofA’s Bull & Bear Indicator ticked up to 6.6 from 6.3, lifted by tighter high-yield and AT1 spreads, tech inflows, and more bullish gold and VIX positioning, though the signal remains neutral.
