Short-Term Trades for the Second Quarter
Michael Hartnett, chief equity strategist at Bank of America, has outlined his preferred trades for the second quarter, highlighting a steepening U.S. Treasury yield curve, China technology stocks, overlooked consumer names and semiconductor shares.
In his latest Flow Show note, Hartnett said he expects the short end of the U.S. Treasury curve to outperform the long end. His view is based on the assumption that the Federal Reserve is unlikely to resume rate hikes, while longer-term inflation expectations remain supported. That dynamic would favor a curve steepening trade.
He also sees opportunity in Chinese technology equities, citing the potential for a tactical easing of tensions between Washington and Beijing. The KraneShares CSI China Internet ETF (KWEB) is down roughly 15% year to date, creating what he views as an attractive entry point.
Consumer and Chip Stocks in Focus
Hartnett favors consumer discretionary companies that have struggled in 2026. The Consumer Discretionary Select Sector SPDR ETF (XLY) has fallen more than 5% this year. He argues that political efforts to address affordability pressures could provide a tailwind for these “unloved” names.
Semiconductors are another preferred play. The PHLX Semiconductor Index (SOX) has gained 28% year to date and is up about 130% over the past year. Hartnett points to relentless capital spending by AI hyperscalers, who remain focused on securing capacity in what he describes as an ongoing capital expenditure race.
Commodities as the Strategic Theme
Looking beyond the current quarter, Hartnett’s longer-term strategic call centers on commodities. He links this stance to deglobalization, resource nationalism, tightening borders and what he characterizes as gradual dollar debasement.
He suggests that asset allocators will increasingly turn to commodities as protection against a weaker U.S. dollar, persistent inflation and geopolitical fragmentation. Concerns about the durability of the OPEC petrodollar framework, in which oil-exporting nations recycle revenues into U.S. Treasurys, reinforce his dollar-bearish outlook.
In his words, investors should “monopolize commodities,” arguing that control of critical inputs such as chips, rare earth elements, minerals and oil will shape competitive positioning in the AI era.
Near-Term Market Outlook
Hartnett expects equity markets to reach new highs by May, supported by a weaker dollar index below 100, improving liquidity conditions and stabilization in regional bank shares. The rebound in semiconductor stocks and resilience in commodity prices further strengthen his near-term bullish view.
While his short-term trades align with broader Wall Street sentiment, his longer-term thesis points to a shift in leadership from U.S. equities toward international stocks and commodity assets in the second half of the decade.
