Key Points
- 01Michael Hartnett expects risk appetite to stay muted until the US dollar surge peaks
- 02Market jitters are tied to bond yields near their highest levels in over two decades
- 03Hartnett describes the current environment as risk-off for investors
- 04He recommends starting to add bonds, calling it a “buy the humiliation” trade
Risk-Off Mood Tied to Strong Dollar
Michael Hartnett of Bank of America (BAC) expects investors to remain cautious toward riskier assets until the US dollar’s recent strength shows signs of topping out. He links the prevailing risk-off stance to the currency’s surge, suggesting that elevated dollar levels are an important constraint on risk-taking. In his view, a durable shift back toward higher-risk trades depends on evidence that this dollar upswing has peaked.
The strong dollar affects a wide range of assets, from global equities to commodities and emerging markets. Hartnett’s assessment implies that as long as the currency remains at or near its recent highs, markets are likely to stay in a more defensive posture. This frames the dollar as a key indicator for gauging when risk appetite may recover.
Bond Yields and Market Jitters
Hartnett also points to rising bond yields as a central source of current market unease. He notes that yields are around their highest levels in more than two decades, a backdrop that has contributed to heightened volatility and tighter financial conditions. These elevated yields, in combination with the strong dollar, underpin the risk-off mood he describes.
Higher yields raise borrowing costs for governments, companies, and households, and can weigh on valuations for risk assets. Hartnett expects market jitters to persist until yields begin to ease decisively from these multi-decade highs. His comments indicate that a broad improvement in sentiment likely requires relief on both the rate and currency fronts.
“Buy the Humiliation”: Turning to Bonds
Against this backdrop, Hartnett advocates what he calls a “buy the humiliation” strategy focused on bonds. He suggests that investors begin to add some bonds to portfolios while risk assets remain under pressure. The phrase underscores that bonds have faced significant headwinds as yields have climbed, leaving segments of the fixed-income market out of favor.
By proposing gradual bond purchases, Hartnett outlines a defensive tilt in portfolio construction suited to a strong dollar and high-yield environment. His stance does not hinge on an immediate reversal in markets, but rather on positioning for eventual stabilization in yields. Until there are clearer signs that both the dollar and bond yields are retreating from their current levels, he sees little reason to expect a swift return to broad-based risk-taking.
Key Takeaways
- 01Hartnett views the combination of a strong US dollar and multi-decade-high bond yields as the key drivers of a prolonged risk-off environment.
- 02A meaningful revival in demand for riskier assets, in his assessment, likely requires both a peak in the dollar and a sustained easing in yields.
- 03His “buy the humiliation” framing signals a shift toward bonds as a defensive adaptation to current market stresses rather than an aggressive bet on near-term recovery.