According to Michael Hartnett, Chief Strategist of Bank of America, in his latest Flow Show report, based on the latest presidential election winning probability, Trump has a 61% chance and Harris has a 49% chance.
But what is more relevant to the market is that, driven by the surge in the probability of the Republican Party winning the US election from 20% to 33%, the probability of a "sweep" in this election is currently 44% (according to oddschecker.com). Although the market may not be very concerned about whether Trump or Harris can win in a deadlock in the election, it will certainly be concerned about whether the Democratic or Republican Party can achieve a complete victory in Congress, and now the probability of the Republican Party winning the House of Representatives and Senate is the highest since Biden withdrew from the election.
Hartnett then turned his attention to the latest fiscal storm in the United States, writing that government spending in 2019 was $4.5 billion, while it is now $69 billion; In 2019, the US treasury bond bond was $232 billion, and now it is $354 billion. This is also the clearest explanation for the structural bear market in government bonds: as neither presidential candidate has hope of achieving budget balance, bonds will continue to be in a structural bear market.
While the United States is secretly stimulating its economy by continuously injecting large amounts of debt, other countries are also making every effort to catch up. A quick glance at Hartnett's core focus - weekly fund flows - reveals a noteworthy highlight: as investors withdraw funds from cash, tech stocks, and emerging markets, gold and cryptocurrency inflows surge: $23.2 billion flows into bonds, $21.4 billion flows into stocks, $1.6 billion flows into cryptocurrencies, $1.2 billion flows into gold, and $17.4 billion flows into cash.
Hartnett reminded that the 2016 Republican sweep in the United States brought sweetness to the stock market, oil, and the US dollar, but brought hardship to bonds and gold. But this seems disproportionate to the current market trend, especially for gold and oil. According to historical data, the former should be lower and the latter should be higher, but the current fact is exactly the opposite.
Hartnett explained these two outliers. He wrote that the price of gold is currently around $2720 per ounce, reaching a historic high and far exceeding the historical peaks of $2000 per ounce in 2020 and $1900 per ounce in 2011. The gold bull market is driven by policy and inflation: the 2020s were a decade of fiscal surplus in the United States and globally, as well as a decade of technology, trade tariffs, and protectionism.
Hartnett pointed out that the Federal Reserve is determined to cut real interest rates in the coming quarters, and investors only need to hedge against the threats of inflation and dollar depreciation. This strategist from Bank of America has concluded that gold will far exceed $3000 per ounce.
Unlike the historic high of gold, the oil price of $70 per barrel is significantly lower than previous historical peaks (such as $124 per barrel in 2022 and $145 per barrel in 2008). Oil prices are driven by economic growth and geopolitics: 2024 is a year of global manufacturing recession, and investors are optimistic about the easing of geopolitical tensions in Russia/Ukraine, the Middle East, and/or the coming quarters.
Hartnett pointed out that the decline in oil prices in the coming quarters means that the advantage of the United States over the international market will weaken, because compared to Europe and Asia, the United States is very fond of geopolitical conflicts, and Europe and Asia are energy importing countries. Lower oil prices=lower interest rates.