Why do I say this wave of US stock market rally is 'dancing in shackles'

1. Market Sentiment Warms Up: Tariff Negotiation Expectations Boost Risk Appetite

Recently, the U.S. stock market has shown a significant rebound trend, with $SPDR S&P 500(SPY.US) and $NASDAQ Composite Index(.IXIC.US) rising consecutively, shifting market sentiment from cautious at the beginning of the year to phased optimism. The core logic driving this rally lies in the potential expectation of Sino-U.S. tariff negotiations—as Trump publicly mentioned "possibly engaging in trade dialogue with China," market hopes for easing trade friction have heated up, creating a window for risk asset valuation repair. From a sector performance perspective, tech and cyclical stocks led the gains, with semiconductors, new energy, and other industries highly sensitive to trade policies outperforming, reflecting bets on the "policy easing - economic recovery" chain.

2. BofA Pours Cold Water: Rebound ≠ Reversal, Selling High Is the Best Strategy

Despite the prevailing optimism, Wall Street institutions have voiced dissenting views. $Bank of America(BAC.US) clearly stated in its latest strategy report: The current U.S. stock rebound lacks fundamental support, and amid lingering uncertainties, every rally is a selling opportunity. Its chief strategist, Michael Hartnett, highlighted three risks not yet priced in by the market:

1. The "Resilience Trap" of Economic Data: U.S. Q1 GDP growth exceeded expectations, but signs of weak consumption spending are emerging, and the corporate earnings downgrade cycle is not over;
2. Policy Uncertainty Premium: Sino-U.S. tariff negotiations remain at the "rumor stage," and Trump’s policy volatility could reverse market expectations;
3. Aftermath of Liquidity Tightening: While the Fed has paused rate hikes, balance sheet reduction continues, keeping market liquidity conditions tight.

BofA’s "Three Buys, Three Sells" strategy serves as a footnote to its bearish logic:

• Buy: Bonds (expectation of lower rates), international stocks (benefiting from dollar depreciation), gold (safe-haven attribute);
• Sell: S&P 500 (overvalued), the dollar (long-term depreciation trend), cyclical stocks (insufficient earnings elasticity).

3. "Pain Trade" Model Warning: The Correction Isn’t Over

The "Pain Trade" model in BofA’s report deserves attention. By tracking hedge fund positions, options market sentiment, and other indicators, the model finds that current market leverage remains at historically high levels, and crowded long positions could trigger a "long squeeze"-style correction. A typical example is the Nasdaq’s sharp drop in December 2024—when the market unanimously bet on a tech rebound, the Fed’s hawkish stance triggered panic selling by leveraged funds. Hartnett notes that similar risks are accumulating again: speculative long positions in the S&P 500 have rebounded to 2023 highs, while corporate buybacks are down 25% YoY, leaving the market vulnerable to sentiment shocks without a "stabilizer."

4. Has the Dollar Entered a Long-Term Depreciation Channel? Three Conditions Determine the Turning Point

BofA’s take on the dollar is particularly sharp: The dollar index has entered a long-term depreciation cycle, and the trend of capital outflow from U.S. assets will continue unless three conditions are met simultaneously:

1. The Fed Starts a Rate-Cut Cycle: Current rate futures suggest the market expects the first cut in Q3 2025, but BofA believes the probability of a "soft landing" is low, and the timing may be delayed;
2. Substantive Easing of Trade Friction: Concrete measures like tariff reduction lists and loosened tech export restrictions are needed, not just verbal statements;
3. Sustained Consumer Spending Resilience: The U.S. personal savings rate has fallen to a low of 3.1%, and if wage growth falls short, consumption resilience may falter.

Until these conditions are met, BofA expects emerging market assets (e.g., Hong Kong and A-shares) to benefit from dollar depreciation and capital reallocation, while high-valuation U.S. sectors (e.g., tech) face compression pressure.

5. Investor Strategy Insights: Finding Balance Amid Divergence

The market is now at a crossroads between "optimistic narratives" and "institutional warnings." Investors can adopt the following strategies:

• Short-Term Policy Signal Tracking: Focus on Sino-U.S. high-level interactions around May and Fed meeting language, as these could break the current "fragile balance";
• Portfolio Rebalancing: Reduce overweight positions in the S&P 500 and add gold ETFs (e.g., GLD) and emerging market ETFs (e.g., EEM) to hedge risks;
• Focus on Earnings Certainty: Within U.S. stocks, prioritize utilities with stable cash flows and high-dividend financials, avoiding growth stocks reliant on valuation expansion.

Conclusion

This U.S. stock rebound is like "dancing in shackles"—optimism props up valuations, but fundamental worries and institutional selling pressure loom. BofA’s warning isn’t alarmist but a reminder that until uncertainties fully dissipate, "cautious optimism" may be closer to survival than "blind chasing." For global investors, balancing risk and reward in the bull-bear tug-of-war will be the core challenge in H1 2025.