The U.S. market is currently in a rare &#34;overlapping moment&#34;: Trump is aggressively cutting taxes like a typical Republican while continuing the high spending levels of the Democrats, leading to a revival of the 1980s deregulation and 1990s tech bull market in U.S. stocks.
Recently, Bank of America's Chief Investment Strategist Michael Hartnett sharply pointed out in his latest report that the U.S. government is combating $7 trillion in spending against $5 trillion in revenue, with a $2 trillion deficit gap causing the dollar to plummet even under a 5% Treasury yield. Behind the market's joy lies the collapse of the dollar, surging debt, and uncertainties driven by AI.
<h2>The Crisis Under &#34;Tax Cuts + Cash Handouts&#34;: The Dollar Dims, Debt Has No Bottom</h2>
Bank of America data shows that since the election, the &#34;bro billionaire&#34; stock basket, representing the elite tech and finance sectors, has surged 45%, while the Russell 2000 index, representing Trump's voter base, has dropped 7%. Tariffs, tax cuts, manufacturing return, deregulation—all favorable policies are in place, yet small investors remain uninterested.
This divergence is reshaping the market landscape. Generation Z and millennials, faced with skyrocketing housing prices, have chosen to retreat, opting instead to save for the future through stocks and cryptocurrencies to hedge against AI risks. The ratio of brokerage firms to home builders has reached a 16-year high, while the unemployment rate for college graduates aged 20-24 has soared to 6% in the past three months, far exceeding the 4% in December 2023.
Trump's approach of &#34;both cutting taxes and spending lavishly,&#34; with $7 trillion in fiscal spending alongside $5 trillion in annual revenue, has driven the deficit to soar to $2 trillion. The total national debt has surpassed $37 trillion, and the &#34;Big Beautiful&#34; bill is expected to pass in July, further increasing the debt by $1.5 trillion. Hartnett bluntly stated that both houses of Congress are likely to raise the debt ceiling by $4-5 trillion to sustain until the 2028 election.
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Even though U.S. Treasury yields remain as high as 5%, the dollar has depreciated nearly 9% this year amid global concerns over the continuous bleeding of U.S. finances. Meanwhile, gold has emerged as the biggest winner, with a year-to-date increase approaching 28%, while cryptocurrencies and crude oil have plummeted by 10% and 12%, respectively.
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In the face of uncertainty, investors are frantically hoarding cash and safe-haven assets. Hartnett noted that in the latest week, $94.8 billion flowed into cash markets—this is the largest inflow since January of this year. The fund flow data from the beginning of the year to date is even more alarming:
<blockquote>
<ul>
<li>Cash inflow of $972 billion (the third largest inflow year in history)</li>
<li>Gold inflow of $75 billion (record inflow year)</li>
<li>Cryptocurrency inflow of $28 billion (the second largest inflow year in history)</li>
<li>U.S. Treasury inflow of $166 billion (the third largest inflow year in history)</li>
</ul>
</blockquote>
Emerging markets have also begun to rebound this year, with equity and bond inflows reaching an eight-week high. Hartnett assesses: The dollar bull may become the &#34;most painful trade&#34; this summer, as gold and emerging markets are becoming safe havens for smart money.
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<h2>&#34;Price, Profits, Policy&#34; Triple Game</h2>
Hartnett summarizes the core of the 2025 market into three &#34;P&#34;: Price (Price), Profits (Profits), and Policy (Policy).
On the price side, gold, non-U.S. stocks, and credit bonds are all rising, but the dollar has plummeted, and U.S. stocks have performed mediocrely. Hartnett believes that a 5% U.S. Treasury yield is now far more attractive than U.S. stocks. Swiss inflation has returned to negative growth, with a 31% probability pointing to a return to negative interest rates in Europe by June, contrasting with record high interest rate differentials between the UK and Switzerland, highlighting the value of bond allocation.
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On the profit side, corporate earnings growth momentum is slowing: BofA's global EPS model shows that global corporate year-on-year earnings growth will drop from 7% in May to 3% by September 2025. A slowdown in export chains and stagnant manufacturing PMI, along with human and inventory-driven indicators, have failed to support accelerated U.S. corporate earnings, making it significantly more difficult for the broad U.S. stock index to sustain a substantial rise to 5000 to 6000 points.
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On the policy side, Trump's policy shift towards a big government and tax cuts is favorable for the U.S. macroeconomy in the short term, but globally more beneficial: In May, the number of global central bank rate cuts reached a new high, with major economies like the UK and Switzerland engaging in monetary easing, coupled with the &#34;Riyadh Agreement&#34; pushing down oil prices, which is particularly beneficial for oil and gas importing countries like Europe, Japan, and India. However, if new fiscal stimulus in Europe and Asia lacks overseas buyers, it undoubtedly puts regional debt risks to the test.
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<h2>AI: The Ultimate Paradox of Inflation or Deflation</h2>
Hartnett refers to the impact of AI on the bond market as an &#34;existential question&#34; — Is AI inflationary or deflationary?
The answer to this question will determine the fundamental direction of investment strategies:
<blockquote>
<ul>
<li>Scenario favorable to bonds: Rising unemployment but increasing productivity (trend at 1.5%), declining unit labor costs, and falling inflation.</li>
<li>Scenario unfavorable to bonds: AI triggers a stock market bubble that pushes up yields, energy demand drives up oil prices, forcing the government to combat AI-induced unemployment waves through higher deficits, and the Federal Reserve is compelled to implement quantitative easing to support deficit financing.</li>
</ul>
</blockquote>
Currently, most bond investors are opting for a &#34;steepening yield curve&#34; strategy to avoid extreme volatility. However, the essential question remains unresolved — Is AI a new wave of intelligent prosperity, or an accelerator of inflation and employment dilemmas? The divergence between U.S. stocks and global assets may provide the first real answer this summer.
<h2>A Global Policy Reshuffle is Coming</h2>
Hartnett anticipates a critical policy turning point between June 15 and July 4: a shift towards peace in trade, a peak in global defense spending expectations, and the locking in of U.S. tax reduction policies.
Key time points to watch include: the Swiss National Bank has a 21% chance of reintroducing negative interest rate policies on June 19; Trump may sign the &#34;Great Beautiful Act&#34; on July 4; and reports from CCTV indicate that the U.S. has committed to suspending 24% tariffs for 90 days, ending on July 8.
When a father from New Jersey laments, &#34;A year ago I was dreaming of student debt relief, but now I have to save more for my child's unemployment after college graduation,&#34; it may be the most genuine reflection of this era.
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Markets are risky, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk

Michael Hartnett, Chief Investment Strategist at Bank of America, pointed out that the U.S. market is experiencing a combination of Trump's tax cuts and high spending, leading to a depreciation of the dollar and a surge in debt. Government spending has reached $7 trillion, while revenue is only $5 trillion, resulting in a deficit of $2 trillion. Small-cap stocks have performed poorly, while tech stocks have surged by 45%. Generation Z and millennials are turning to stock and cryptocurrency investments due to high housing prices. Despite U.S. Treasury yields reaching 5%, the dollar has depreciated by nearly 9%, and gold has risen by almost 28%. Investors are hoarding cash and safe-haven assets

- The U.S. market is experiencing a rare "overlapping moment" with significant tax cuts and high spending, leading to a $2 trillion deficit.  
- Despite favorable policies, small-cap stocks are declining while cash and gold are seeing substantial inflows, indicating a shift in investor sentiment.  
- The impact of AI on inflation and deflation remains uncertain, with upcoming policy changes expected to reshape the global economic landscape.

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Bank of America

Bank of America Hartnett: Trump's tax cuts are like the Republicans, spending like the Democrats, and the U.S. stock market is like "the deregulation of the 80s + the tech frenzy of the 90s"