“Buy on rumor, sell on news” – BofA with a bearish view of the meeting in Switzerland

The recent rise in the stock market is fueled by optimism regarding upcoming trade agreements, but according to the chief investment strategist at Bank of America, Michael Hartnett, this rise will slow down once the agreements are finalized.

Over the past month, stocks have followed a somewhat uneven but upward path, depending on the fluctuating positions of President Donald Trump regarding tariffs. In most cases, investors have taken a more optimistic stance, believing that the final tariffs will not be as harsh as those initially proposed on April 2.

This is essentially the correct interpretation, but according to Hartnett, it is likely to change once the deals are finalized, he wrote in his weekly analysis of capital market cash flows.

“Overbought stocks are correctly anticipating trade deals for Q2/lower tariffs,” the strategist writes. “We expect the strategy ‘buy on expectation, sell on the news,’ meaning that stocks will retreat after the trade deals are concluded.”

The S&P 500 index has regained the losses incurred after Trump announced the 10% universal tariffs on April 2, as well as the individualized “reciprocal” fees. Over the past month, the large-cap index has risen by almost 4%, while the Nasdaq Composite, which is more heavily tech-oriented, has grown by around 5%.

Despite the initial relief that tariffs are likely not to be as high as initially proposed, Hartnett calculates that they will still represent a tax burden of over $600 billion on imports.

From an investment perspective, Bank of America recommends a short position on the U.S. dollar until the Federal Reserve begins to cut interest rates, but also maintaining a long position in 5-year U.S. Treasury bonds until budget negotiations in Washington lead to an extension of the 2017 tax cuts.

“We believe that bonds are in the early phase of a structural bear market that began in 2020, commodities are in the early phase of a structural bull market, led by gold, and U.S. stocks are in the late phase of a structural bear market relative to international stocks,” Hartnett writes.