Bank of America (BofA) strategists warn that the Trump administration’s renewed push for tax cuts and lower tariffs could spark another bout of speculative frenzy in financial markets.
Bank of America’s (BofA) strategists, led by Michael Hartnett, say the shift in U.S. policy toward “we’re going to need a bigger bubble” as a solution to rising debt may lure traders away from bonds and back into hot areas like artificial intelligence and cryptocurrencies.
Although Hartnett still believes that a mix of bonds, international stocks, and gold is the safest portfolio for 2025, he cautions that an “all-out bullish” scenario driven by aggressive tax and tariff cuts is the greatest threat to his outlook.
After President Donald Trump softened his stance on steep tariffs and urged the Federal Reserve to lower interest rates to boost growth, U.S. equities and Bitcoin have rebounded sharply from April’s sell-off.
The strategists note that in past periods of market euphoria, the usual link between bonds and stocks has often flipped. They point out that bond yields climbed in 12 of the last 14 asset bubbles, adding that “nothing screams bubble more than equities driving nominal/real yields higher.”
Magnificent Seven stocks often rise 30% from a bubble’s start: BofA analysts
Looking back at previous bubbles, the team estimates that the so-called Magnificent Seven tech stocks typically rally about 30% from the start of a bubble to its peak. To guard against a sudden downturn, they recommend a “barbell” approach that holds those seven names alongside global value stocks as a hedge.
Earlier this month, the 30-year U.S. Treasury yield rose above 5% after Moody’s Ratings downgraded the U.S., and investors grew concerned that larger government debt could undermine the country’s safe-haven status. Meanwhile, the Nasdaq 100 has jumped nearly 10% in May, on pace for its strongest monthly gain since 2023.
Other highlights from the BofA report include the fact that investors withdrew $9.5 billion from global equity funds last week, marking the largest weekly outflow of 2025, according to EPFR data. At the same time, assets seen as “weak dollar plays,” such as gold, cryptocurrencies, and emerging-market debt and stocks, attracted substantial inflows.
The strategists argue that 30-year Treasuries yielding 5% now look more appealing than the S&P 500.
