Bank of America (BAC) it just waved a not-so-subtle red flag for bond market investors and anyone with a position in the stock market.
In a new Flow Show note, Chief Equity Strategist Michael Hartnett argued that “anything but bonds” is here and that the traditional safety trade has failed.
Setting out his reasoning briefly, he said the first half of the 2020s delivered what he called “humiliating the bond market”, with long-term government debt suffering unprecedented damage.
For perspective, the data supports Hartnett’s point that long-term government bonds have indeed experienced large, unusual losses.
The iShares 20+ Year Treasury Bond ETF (a proxy for “long bonds”) lost a massive 31% in 2022 (one of his worst years), with max draw at nearly -47.8% from the 2020 peak to the end of 2025.
So where does the money go when bonds can no longer protect your portfolio?
Well, BofA’s response is broad and in many ways among the most counterintuitive.
Hartnett expects the back half of the decade to be favorable international equities, emerging markets, commodities and goldwith a weaker dollar fueling reflation overseas.
So, AI stocks that have caught the eye over the past three years may slip behind small- and mid-cap players amid strong industrial relocation and rebuilding trends.
Bank of America warns that a change in market leadership may challenge investors as bonds lose their safe-haven role.Photo by Spencer Platt on Getty Images” loading=”eager” height=”640″ width=”960″ class=”yf-lglytj loader”/>
Bank of America warns that changing market leader may challenge investors as bonds lose their safe-haven role.Photo by Spencer Platt on Getty Images ·Photo by Spencer Platt on Getty Images
BofA’s warning is less about the next big deal and more about the foundation beneath investment portfolios, which has apparently changed.
Hartnett believes they bind (the dampers) effectively failed at the main job, persuading investors to rethink risk across the stock market.
Hartnett believes that this rethinking is already underway.
A weaker dollar, stronger commodity prices and reflation outside the US will favor international and emerging market stockswho are otherwise left behind.
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For perspective, the US dollar index fell 9% of its value in the last 12 months and decreased almost 2% in the last 5 days alone, MarketWatch noted.
To look at the numbers for emerging stocks, let’s take a clear indicator in iShares MSCI Emerging Markets ETF to see how they fared against the tech-heavy S&P 500.
For the entire year 2025, here’s how the box went.
MSCI ETF (EM Shares): +33.98%
SPY (S&P 500): +17.72%
MAGS (Magnificent Seven ETF): +22.99%
Furthermore, the argument for global reflation appears in the numbers.
The data suggests Japan is no longer in a deflationary era, with Investing.com putting headline inflation at 2.1% and core inflation at 2.4% (both hovering above the Bank of Japan target).
China it’s a little more uneven, but consumer prices are improving, as CPI up 0.8% and Core CPI rises 1.2%while factory gate prices remain largely deflationary. Meanwhile, the the euro zone it does not even flirt with total deflation, with near inflation 1.9% and the services are still running hot.
Drawing parallels with today’s stock market, Hartnett looks back to the 1970s, where the setup feels remarkably familiar.
Investors at the time flocked to the “Nifty Fifty”: dominant, high-growth stocks that almost felt bulletproof. So essentially investors were willing to pay any price for quality.
However, macroeconomic conditions soon changed, led by rising inflation numbers, government intervention, a weakening dollar and a squeeze on valuations.
Related: Goldman Sachs renews gold price target for 2026
Although businesses survived, their stocks were affected.
This is exactly the parallel Hartnett is now drawing.
Today’s AI-powered megacaps have convinced investors that they are exceptional businesses, but the extreme concentration leaves the door open for a major correction if the macro context becomes even a little less supportive.
That’s exactly what the IMF’s chief economist, Pierre-Olivier Gourinchas, said in a recent article I wrote about the economy on shaky ground.
To be honest, you don’t have to be an active stock market investor to notice how a few names like Nvidia and Google have driven much of the business news cycle.
Over the past few years, a small group of AI-linked megacaps have led stock returns, and the data shows just how skewed the rally has become.
The Magnificent 7 now accounts for more than 34% of the S&P 500an unusually high number for a handful of stocks.
The top 10 stocks account for nearly 39% of the indexcomfortably above the late 1990s peak of nearly 27%.
Poster children like Nvidiathe clueless proxy for AI-based excitement, skyrocketed by about 240% in 2023 and another 170% in 2024on Investopedia.
In 2025 alone, Nvidia accounted for nearly 15.5% of the S&P 500’s total gaina staggering statistic, to say the least.
Inflation, politics and political pressures effectively change the entire background of the market. However, this is not an unfolding doomsday scenario, but rotational leadership as the new conditions take hold.
As the numbers show, we’re already seeing it take shape. For perspective, the tech-dominated S&P 500 is up 1% year to date, trailing the Russell 2000’s 7.5% gain over the same period, the Associated Press reports.
Neither is the sector leader in technology right now.
Here’s a look at the total return (including dividends) of major ETFs representing their respective industries through January 23, 2026.
Other Wall Street strategists, including Jeremy Siegelprofessor emeritus at Wharton and chief economist at WisdomTree, echoes the sentiment.
In a recent CNBC interview, Siegel said the market leader’s long-promised expansion appears sustainable, raising questions about the strength of the megacap’s tech rally.
Related: Top Analyst Revises Palantir’s Price Target Ahead of Earnings
This story was originally published by TheStreet on January 24, 2026, where it first appeared in the Economy section. Add TheStreet as a favorite source by clicking here.
