--- title: "A Democratic midterm sweep could make bonds the fourth-quarter contrarian play, says B. of A.'s Hartnett" type: "News" locale: "en" url: "https://longbridge.com/en/news/298053185.md" description: "Bank of America strategist Michael Hartnett predicts bonds will be a contrarian play in Q4, anticipating a Democratic midterm sweep. He argues this political shift could lower growth assumptions and earnings expectations, weakening stocks and the dollar while boosting bond prices. Despite recent negative returns, Hartnett views current low yields as an entry point, supported by central banks tightening policy to curb long-term yields." datetime: "2026-09-04T14:53:27.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/298053185.md) - [en](https://longbridge.com/en/news/298053185.md) - [zh-HK](https://longbridge.com/zh-HK/news/298053185.md) generator: "portal-rs" --- # A Democratic midterm sweep could make bonds the fourth-quarter contrarian play, says B. of A.'s Hartnett By Jules Rimmer Lower growth assumptions and weaker stocks would enhance the appeal of bonds, says equity-market strategist and 'Flow Show' author Lower bond yields - and higher prices - are Michael Hartnett's favorite contrarian call for the fourth quarter. The likelihood of a Democratic sweep of the Senate and the House of Representatives is rising if the evidence of Donald Trump's approval ratings, ranging between 35% and 40%, are anything to go by. Bank of America's chief equity strategist thinks this would represent a big risk-off event leading to a slump in the stock market and the U.S. dollar but a rally in bonds into year-end. Trump overall approval ratings. What's concerning for equities in the event of a Democratic sweep is what Michael Hartnett describes as a shift from populist capitalism to populist socialism and a reversal of the trends toward lower taxes and lighter regulation. The upshot of this would be EPS-negative, lowering earnings per share expectations, Hartnett observes, but, overall, the political changes would challenge the K-shaped wealth boom and the surge of AI capital expenditure. The thinking behind this call is that, if anticipation of Democratic Party policies leads to lower growth assumptions, this would bring down bond yields, which in turn would weaken the dollar DXY as its interest-rate differential versus other currencies would narrow. So bonds would be a real contrarian call here, especially after this recent period that Hartnett characterizes as the "Anything But Bonds" era. In fact, the 10-year rolling return from U.S. Treasury bonds is negative-2% - the worst of the last century - and, in his weekly "Flow Show" strategy note, published Friday, Hartnett includes a chart illustrating how negative long-run returns have proved to be excellent entry points in the past, like in December 1959 and September 1981. Negative long-run returns ... great entry points Midterm elections are clearly front-and-center for the U.S. government and investors alike, and this is why, Hartnett argues, some numbers have assumed immense importance, like $4-a-gallon gas, the 160 level of the Japanese yen versus the U.S. dollar (USDJPY) and the 5% level on U.S. long bonds BX:TMUBMUSD30Y. Their significance to voters explains why the current administration is intervening in the currency and bond markets and doing its level best to talk down oil prices. Hartnett notes that central banks are tightening as they try to restore credibility and ward off the surge in bond yields. So, for example, a hike from the European Central Bank on Sept. 10 is 99% priced in, while 25 basis points (FF00) from the Fed on Sept. 16 is a 50-50 shot, and the Bank of Japan is also widely expected to tighten monetary policy when it meets Sept. 18. Raising short-term rates should have the effect of lowering longer-term yields, and this is why Hartnett thinks we have "peak yields" right now. -Jules Rimmer This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. 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