Bank of America (BAC) Just raised a subtle red flag for bond market investors and anyone invested in the stock market.
In a new Flow Show note, the chief equity strategist Michael Hartnett Argued that the era of “nothing but bonds” is here, and that traditional security trading has failed.
Presenting his curt justification, he said that the first half of 2020 will see what he calls “Bond-market disgrace“Long-term government debt has suffered unprecedented losses.
For perspective, the data supports Hartnett’s point that long-term government bonds have actually suffered large, abnormal losses.
iShares 20+ Year Treasury Bond ETF (a proxy for “long bonds”) A massive drift 31% in 2022 (one of its worst years), with Maximum decline at around -47.8% From its 2020 peak to the end of 2025.
So where does the money go when bonds can’t protect your portfolio?
Well, BofA’s answer is broader and, in many ways, between more contradictory takes.
Hartnett expects the back half of the decade to be favorable International stocks, emerging markets, commodities, and goldWith a weak dollar foreign fueling inflation.
So AI stocks that have hogged all the spotlight over the past three years may take a backseat to small- and mid-cap players on the back of powerful reshoring trends and industrial restructuring.
Bank of America warns that changing market leadership could challenge investors as bonds lose their safe-haven role. Photo by Spencer Platt at Getty Images” loading=”eager” height=”640″ width=”960″ class=”yf-lglytj loader”/>
Bank of America warns that changing market leadership could challenge investors as bonds lose their safe-haven role.Photo by Spencer Platt at Getty Images ·Photo by Spencer Platt at Getty Images
BofA’s warning is less about the next big trade and more about the foundations beneath investment portfolios, which have clearly shifted.
Hartnett believes bonds (shock absorbers) are effective failed in his primary task, Forcing investors to rethink risk in the entire stock market.
That rethinking, Hartnett believes, is already underway.
A weaker dollar, stronger commodity prices, and reflation outside the US will be in favor International and emerging market stockswho are otherwise left behind.
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For perspective, the US dollar index has shed 9% of its value in the last 12 months and almost fell 2% in last 5 days Alone, MarketWatch mentioned.
To see the numbers of emerging stocks, take Clean Gauge iShares MSCI Emerging Markets ETF To see how they’ve performed against the tech-heavy S&P 500.
For the full year 2025, here’s how the tape worked.
MSCI ETF (EM Stocks): +33.98%
SPY (S&P 500): +17.72%
MAGS (Magnificent Seven ETF): +22.99%
On top of that, global reflection logic is showing up in numbers.
The statistics suggest that Japan Investing.com is no longer in a deflationary era, indicating headline inflation at 2.1%. Core Inflation 2.4% (both hovering above Bank of Japan targets).
China A bit more uneven, but consumer prices are improving, e.g CPI rose 0.8% and Core CPI rose 1.2%While factory-gate prices remain mostly deflationary. Meanwhile, the Eurozone Not flirting with obvious deflation, either, 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 is remarkably familiar.
At the time investors flocked to the “Nifty Fifty”: impressive, blue-chip growth stocks that felt almost 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 weak dollar, and shrinking valuations.
Related: Goldman Sachs quietly revises gold price target for 2026
Although the businesses survived, their stocks took a hammering.
That’s exactly the parallel Hartnett is drawing now.
Today’s AI-powered megacaps have convinced investors that they are extraordinary businesses, but extreme concentration leaves the door open for a big correction if the macro backdrop is even slightly less supportive.
As Pierre-Olivier Gaurinchus, the IMF’s chief economist, said in a piece I wrote recently, he talked about the economy being on shaky ground.
To be honest, you don’t need to be an active stock-market investor to notice how a handful of names like Nvidia and Google have driven the business news cycle.
Over the past few years, a small group of AI-linked megacaps have led stock market returns, and the data shows how performance has skewed.
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 about 39% of the indexComfortably above the peak of the 1990s near 27%.
Like the poster children NvidiaA no-brainer proxy for AI-powered excitement, About 240% in 2023 and another 170% in 2024Per Investopedia.
In 2025 alone, Nvidia contributed about 15.5% of the S&P 500’s total gains.A staggering statistic, to say the least.
Inflation, politics and policy pressures are effectively changing the entire market backdrop. However, this is not about a doomsday scenario, but about the leadership rotating as new situations take hold.
As the numbers show, we’re already seeing that take shape. For perspective, the tech-dominated S&P 500 is up 1% for the year, after a 7.5% gain in the Russell 2000 over the same period, the Associated Press reports.
Sector leadership is also not present in the technical sector.
Here’s a look at the total-return (dividends included) performance of major ETFs representing the respective industries through January 23, 2026.
Other Wall Street strategists, including Jeremy SiegelBhavna Echoes, Professor Emeritus at Wharton and Chief Economist at WisdomTree.
In a recent CNBC interview, Siegel said the long-promised extension of market leadership appears durable, raising questions about the strength of the megacap tech rally.
Related: Top Analyst Revisits Palantir 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 preferred source by clicking here.
