Bank of America strategist Michael Hartnett has issued a cautionary note, suggesting the recent stock market selloff isn't over yet.
His main argument is that U.S. equities 'haven't fallen enough' to signal a durable bottom. We're seeing a classic flight to safety, where investors are selling not just stocks but also traditional havens like gold, and parking the cash in short-term government debt, or T-bills. This widespread de-risking, however, sets the stage for what Hartnett calls 'policy-panic easing.' He believes the pressure will build until policymakers, potentially President Trump, are forced to intervene with an emergency support package.
The backdrop for this call is a market under significant stress. First, Wall Street just endured its fifth consecutive losing week, a streak of pessimism not seen since the Iran war escalated. This prolonged decline has been marked by a simultaneous selloff in both stocks and gold over the past month, a clear sign that investors are raising cash indiscriminately. At the same time, assets in money market funds, a proxy for cash holdings, have swelled to approximately $7.82 trillion.
Second, the Federal Reserve has limited room to act on its own. Recent inflation data, with CPI still around 2.4-2.5%, remains stubbornly above the Fed's 2% target. This stickiness prevents the central bank from cutting interest rates preemptively, shifting the burden of stabilizing the economy onto fiscal policy—that is, the government's spending and tax policies.
Finally, underlying market health has been deteriorating for some time. A significant selloff in the software sector, sparked by new AI developments from Anthropic in February, weakened a key market leader. This, combined with ongoing trade and tariff uncertainties from early 2026, has created a fragile environment where sentiment has cooled, but true capitulation—where investors give up completely—hasn't occurred.
In essence, Hartnett's message is not a simple 'buy the dip' call. It's a strategic forecast that the market needs more pain to trigger a policy response, which will then create the real buying opportunity. He suggests that investors should preemptively watch battered assets like gold and software stocks, as they may lead the rebound once government support becomes likely.
- Glossary
- Policy Panic: A scenario where severe market or economic stress forces policymakers (like the government or central bank) to implement emergency support measures they might otherwise have avoided.
- Capitulation: The point in a market decline when investors give up hope of a recovery and sell their assets en masse, often marking the bottom of a selloff.
- T-bills (Treasury Bills): Short-term debt securities issued by the U.S. government with maturities of one year or less. They are considered one of the safest investments in the world.