'Monster Equity Inflows Say No One Really Believes Trade War,' Bank Of America's Hartnett Says

Bulls are storming back into markets with near-record inflows into stocks and gold, brushing aside concerns that trade tariffs could unleash an economic recession and a bear market on Wall Street.

In a note shared Friday, Bank of America's chief investment strategist Michael Hartnett said U.S. stocks recorded their biggest weekly inflow of the year, witnessing $34.1 billion of net capital last week.

“Monster equity inflows say no one really believes trade war = recession/bear market,” Hartnett wrote.

Why April 2 Matters For Markets

Hartnett playfully dubbed Apr. 2—the day “reciprocal tariffs” take effect—as a potential "peak fear" moment but suggested market direction might hinge more on "whom [Trump] is playing golf with on Apr. 1."

Yet, with U.S. tariffs poised to surge from 2–3% to over 10%, bonds and gold appear far less exposed to a potential “tariff pandemic” than U.S. and international equities.

In other words, according to Hartnett, short-term trade-related turbulence can still make gold and bonds safer plays for now.

The SPDR Gold Trust (NYSE:GLD) has posted gains in eleven of the past twelve weeks.

From COVID Crash To Now: A Five-Year Astonishing Surge

This week also marked the fifth anniversary of the S&P 500's COVID low at 2,222 points. Since then, the index has gained more than 150%, powered by an era of rapid fiscal expansion and resilient corporate earnings.

Over the same stretch, U.S. nominal GDP has risen by 50%, government spending surged by 65%, and inflation has hit both Wall Street and Main Street. Yet U.S. Treasuries are down about 50% from their pandemic-era highs.

Foreigners Sell US Equities, Rotate Back To Europe, China

Appetite for equities outside the U.S. is accelerating. Last week, European stocks drew in $4.3 billion, the largest inflow since May 2017 and the fourth biggest ever.

Chinese and German stocks – as tracked by the iShares China Large-Cap ETF (NYSE:FXI) and the iShares MSCI Germany Index Fund (NYSE:EWG), respectively – are both up more than 20% since the U.S. election, reinforcing Hartnett's claim that investors are downplaying the trade war.

The resurgence in European equities comes amid collapsing sentiment elsewhere. Hartnett flagged the second-biggest drop in global growth expectations ever and the biggest decline in U.S. equity allocation on record.

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• Equity Exposure Plummets, Cash Holdings Jump As Investors Rethink ‘US Exceptionalism,’ Bank Of America Survey

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