Chief strategist Michael Hartnett of Bank of America Merrill Lynch stated that the excitement sparked by the first round of rate cuts by the Federal Reserve is exacerbating the bubble risk in the US stock market. Considering the risks of economic recession and inflation resurgence, bonds and gold have once again become attractive hedging tools.
In a recent report, Hartnett mentioned that the US stock market is currently digesting the expectation of further rate cuts by the Federal Reserve and an 18% earnings growth of S&amp;P 500 index components by the end of 2025.
&#34;The risks are not diminishing, hence investors are forced to chase the upward trend,&#34; Hartnett wrote. He emphasized that the &#34;bubble risk&#34; is resurfacing, and it is advisable to buy bonds and gold on dips.
Bank of America is not the only one bearish on the US stock market. Jeffrey Jaensubhakij, Chief Investment Officer of Singapore's sovereign wealth fund GIC, warned that in the scenario of rising inflation risks, the market prosperity following the significant rate cuts by the Federal Reserve may be short-lived. Additionally, while the US stock and bond markets are diverging, the bond market is signaling &#34;economic recession&#34; while the stock market is indicating &#34;economic acceleration,&#34; and only one of them is correct.
Hartnett also mentioned that in the event of an economic soft landing, stocks outside the US and commodities are better investment targets, with the latter being a common hedge against inflation. He pointed out that stock prices in other countries are relatively cheaper and are starting to outperform US stocks.
After a collective surge in European and American stock markets on Thursday, there was a noticeable pullback on Friday, with Nasdaq futures, S&amp;P 500 index futures slightly declining, and the STOXX 600 index in Europe widening its decline to 1%, reflecting a more cautious investor sentiment.
Due to the persistent risk of economic recession, Hartnett has maintained a bullish stance on US bonds this year, believing that monetary policy will become looser in the next 12 months. His predictions have proven accurate, as the 10-year US Treasury yield has cumulatively dropped by 100 basis points since Hartnett turned bullish on US bonds, reaching a new low for the year at one point.
In a previous report, Hartnett also mentioned that gold is the &#34;best hedge tool against the accelerated inflation in 2025,&#34; just like in 2021 and 2022. Gold has served as the best-performing asset, providing a warning signal for explosive inflation during these two years, and it is expected that the price of gold will rise to $3000 per ounce

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Hartnett, who accurately predicted the surge in US bonds, pointed out that bonds and gold are powerful hedging tools against economic recession and inflation backlash. In the prospect of a soft landing, stocks and commodities outside the United States are better investment targets

- Michael Hartnett, Chief Strategist at Bank of America, warns that excitement from the Fed's first rate cut is increasing the risk of a stock market bubble, suggesting bonds and gold as attractive hedges against recession and inflation risks.  
- He notes that the stock market is adjusting to expectations of further rate cuts and an 18% growth in S&P 500 earnings by the end of 2025, while cautioning that the current market boom may be short-lived amid rising inflation risks.  
- Hartnett advocates for investing in foreign stocks and commodities, highlighting that gold remains the best hedge against potential inflation resurgence in 2025, with prices expected to rise to $3,000 per ounce.

BofA's Hartnett: Rate cuts exacerbate US stock bubble risk, bonds and gold more attractive