BofA Strategist Frankly Calls "Big and Beautiful" a Bubble Creation
The "Big and Beautiful" act signed by U.S. President Trump has recently come into effect. However, BofA's chief strategist Hartnett bluntly stated in his latest report that the act is essentially creating a "big and beautiful bubble," pushing U.S. debt to unsustainable extremes.
Hartnett pointed out that the Trump administration, unable to cut deficits and defense spending, is attempting to support economic growth through massive tariffs and tax cuts, which ultimately relies on creating a debt bubble to pay for the act.
U.S. Debt May Exceed $50 Trillion
According to Hartnett's calculations, the "Big and Beautiful" act raises the U.S. debt ceiling by an additional $5 trillion to $41 trillion. By the 2028 U.S. election, federal debt could rise to $43 trillion and exceed $50 trillion by 2032.
He warned that this prediction does not factor in potential economic recessions, financial crises, or new pandemic shocks that could increase fiscal spending. The U.S. debt could swell further in the coming years, with unexpected $10 trillion growth not out of the question.
Global Asset Allocation May Undergo Significant Shift
Hartnett believes that huge debt and expanding U.S. deficits have led global investors to avoid long-term U.S. bonds, pivoting towards the international market, gold, and digital assets as hard currency. He cited data showing the dollar fell 11% in the first half of this year, marking the largest half-year drop since 1973. Gold prices rose 26%, the best half-year performance since 1979, while global equities outside the U.S. climbed 16%, the best since 1993.
This shift highlights investors making defensive allocations against potential debt risks and dollar depreciation, pointing to a continuing structural change in global capital flows.
Stock Markets Nearing Sell Signals
Hartnett also cautioned that global markets are approaching "overbought" thresholds, which might trigger short-term adjustment pressures. He cited BofA's global fund flow rules indicating that funds flowing into global stocks and high-yield bonds over the past four weeks have nearly reached 0.9% of asset management size, nearing the 1% threshold that would trigger a sell signal.
Additionally, based on global breadth rules, 82% of MSCI global index components are currently above the 50-day and 200-day moving averages. If this rises to 88%, it will trigger another sell signal. He noted that should the S&P 500 index further break past the 6,300-point mark by July, the market may enter a correction period following an overbought phase.
Investors Should Guard Against Market Greed
Although the market is approaching a "sell threshold," Hartnett reminded investors that "an overbought market can persist longer," as greed tends to be difficult to overcome. He advised investors to closely monitor global capital flows, debt risks, and dollar trends to brace for potential market corrections or volatility.
While the "Big and Beautiful" act temporarily boosts economic and market confidence, the hidden risks of debt expansion and deficits have prompted severe warnings from Hartnett, known as "Wall Street's most accurate analyst." In the coming years, the rapid increase in U.S. debt, changes in global capital structures, and potential market corrections could become critical issues for global investors to address.
