All commodities will be "like gold"! Bank of America Hartnett: Going long on commodities is the best "hot trade" for next year

Bank of America Chief Investment Strategist Michael Hartnett recently predicted that going long on commodities will become the best trading theme in 2026, with all commodity price charts ultimately showing an upward trend similar to that of gold. This judgment is based on the global economy shifting from the "monetary easing + fiscal tightening" model after the financial crisis to the "fiscal easing + de-globalization" new paradigm post-pandemic.

In his latest Flow Show report, Hartnett elaborated that the Trump administration will adopt a "hot" economic policy, and oil prices will rebound after the resolution of the Russia-Ukraine conflict, which will collectively drive the commodities sector stronger.

"Trump's hot economic policy and the rebound in oil prices after the resolution of the Russia-Ukraine issue will soon make all commodity price charts resemble gold; Latin American stock markets are telling you something."

He emphasized that natural resources, metals, and Latin American stock markets (which have risen 56% year-to-date) are breaking through comprehensively. In the commodity sector, which has long been neglected by the market, Hartnett is particularly optimistic about oil and energy sectors, believing they represent the best contrarian investment opportunity in 2026.

He also pointed out that current investors are optimistic about risk assets, but the bond market is monitoring the "hot trades," especially as historical patterns show that the announcement of the Federal Reserve Chair nomination leads to rising U.S. Treasury yields. Additionally, the report noted,

The core logic of this judgment lies in the shift in economic policy paradigms: The global financial crisis led to excessive monetary easing but fiscal tightening, causing bonds to outperform commodities during a long stagnation; whereas the excessive fiscal easing post-COVID-19, combined with the end of globalization, allows commodities to outperform bonds during the populism and inflationary growth of the 2020s.

Commodities Welcome Structural Opportunities

The report indicates that the shift in global economic policy paradigms has created structural opportunities for commodities. In the decade following the financial crisis, the combination of excessive monetary easing and fiscal tightening allowed bonds to significantly outperform commodities during a long stagnation. However, the COVID-19 pandemic has changed this landscape.

The post-pandemic policy combination features excessive fiscal easing and relatively smaller monetary easing, coupled with the end of globalization, which enables commodities to outperform bonds in the political populism and inflationary growth environment of the 2020s.

Currently, natural resources, metals, and Latin American stock markets are all experiencing technical breakthroughs, with Latin American stock markets rising 56% year-to-date.

Hartnett emphasized that among all commodity sub-sectors, the oil and energy sectors, which have long been scorned by the market, are undoubtedly the best "hot trade" contrarian investment targets. This judgment is based on the resonance of multiple factors, including the economic policies of the Trump administration, geopolitical changes, and exchange rate patterns

Historical Pattern: Yields Must Rise After the Nomination of the Federal Reserve Chairman

Although Hartnett is optimistic about commodities, he holds a cautious attitude towards the bond market. Bank of America previously tactically went long on zero-coupon bonds, based on the upcoming Federal Reserve interest rate cuts, Trump's intervention in the economy to lower inflation and boost approval ratings, and a weakening labor market. Data shows that private sector employment growth in the U.S. is the weakest since October 2020, with the youth unemployment rate rising from 5.5% in 2023 to 9.2%.

However, the bank plans to end this tactical long position in long-term bonds before May 15 of next year (the start of the next Federal Reserve Chairman's term). Reasons include: bond yields in Japan and China (the long-term "bottom" of global yields) are rising, benefiting the Japanese banking sector; the market currently expects the second major central bank to raise interest rates in 2026 (Australia).

Historical data shows that in the seven nominations of Federal Reserve Chairmen since 1970 (Burns, Miller, Volcker, Greenspan, Bernanke, Yellen, Powell), yields have risen every time within three months, with the 2-year yield averaging an increase of 65 basis points and the 10-year yield averaging an increase of 49 basis points.

Notably, from Nixon's nomination of Arthur Burns in October 1969 to the start of his term in February 1970, the yield on the U.S. 10-year Treasury rose by 100 basis points, and the Dow Jones Industrial Average fell by 11%.

Hartnett points out that bonds do not favor "hot" economic policies, and the bond market is monitoring "hot trading."

The biggest threat to the current market is that all the upside potential in the stock and credit markets in 2026 may be concentrated in the first half of the year; the only thing that can stop the Christmas rally is a "dovish" rate cut by the Federal Reserve leading to a sell-off in long-term bonds.

Finding Opportunities Amid Market Divergence

Compared to the overall pressure in the bond market, the stock market presents a more complex divergent pattern.

Hartnett believes that the peak of liquidity corresponds to the trough of credit spreads, and bond vigilantes are becoming the new regulators of AI capital expenditures, demanding a slowdown in growth, as the capital expenditures of super-large cloud service providers are expected to rise from 50% of cash in 2024 ($240 billion) to 80% in 2026 ($540 billion)

In the AI field, Hartnett is more optimistic about the adopters of AI technology rather than the spenders. To cope with the potential intervention by the Trump administration to prevent the inflation rate from reaching 4% and the unemployment rate from reaching 5%, the bank's strategists are optimistic about the performance of mid-cap stocks in 2026.

He pointed out that the market capitalization of the tech giants "Mag 7" is enough to swallow the entire small-cap 600 index and mid-cap 400 index, both of which are relatively cheap in valuation.

In specific sectors, Hartnett believes that the "Main Street" cyclical sectors (home builders, retail, paper, transportation, real estate investment trusts) have the best relative upside potential. This judgment is based on the economic stimulus policies that the Trump administration may adopt and support for the domestic economy