Bank of America's chief investment strategist Michael Hartnett predicts that going long on commodities will emerge as the top trade theme in 2026, with all commodity charts ultimately mirroring gold's upward trajectory. This outlook stems from a global economic shift from the post-financial crisis era of "monetary easing + fiscal tightening" to a new post-pandemic paradigm of "fiscal expansion + deglobalization."

In his latest *Flow Show* report, Hartnett argues that a Trump administration’s "hot" economic policies, coupled with an oil price rebound following a Russia-Ukraine resolution, will jointly propel the commodities sector. "Trump’s hot policies, post-Russia-Ukraine oil rebound—soon all commodity charts will look like gold; Latin American equities are signaling this," he emphasized. Natural resources, metals, and Latin American stocks (up 56% year-to-date) are witnessing broad-based breakouts.

Among long-neglected commodity segments, Hartnett particularly favors oil and energy, calling them 2026’s prime contrarian plays. He notes that while investors remain bullish on risk assets, bond markets are monitoring "hot trades," especially as historical trends show Treasury yields rise after Fed chair nominations.

The report highlights a core thesis: policy regime shifts. Post-2008, monetary largesse and fiscal austerity made bonds outperform commodities during secular stagnation. But post-COVID fiscal splurges and deglobalization now favor commodities in this era of populism and inflationary growth.

**Structural Tailwinds for Commodities** The pandemic reversed the post-crisis playbook. With fiscal dominance replacing monetary policy and globalization unraveling, commodities are structurally poised to outshine bonds. Latin American equities (up 56% YTD), metals, and natural resources are already breaking out technically. Hartnett singles out oil and energy—long scorned by markets—as the ultimate "hot trade" contrarian bet, citing Trump policies, geopolitics, and currency dynamics.

**Bonds Brace for Heat** Despite tactical long positions in zero-coupon bonds (anticipating Fed cuts and labor market softening), BofA plans to exit by May 15, 2026—when the next Fed chair’s term begins. Rising yields in Japan and China (historically yield "floors"), alongside expectations of central bank hikes (e.g., Australia), support this move. Since 1970, Treasury yields have risen within three months of every Fed chair nomination (Burns to Powell), with 2-year yields averaging +65bps and 10-year yields +49bps.

Hartnett warns bonds dislike "hot" policies, and the market’s key risk is a front-loaded 2026 rally in equities/credit, potentially derailed only if Fed dovishness triggers long-dated bond selloffs.

**Equities: Divergence and Opportunity** Amid bond market pressures, equities show nuanced divergence. With liquidity peaks coinciding with credit spread troughs, bond vigilantes now scrutinize AI capex—demanding slower growth as hyperscalers’ capex-to-cash ratio jumps from 50% ($240B) in 2024 to 80% ($540B) by 2026. Hartnett prefers AI adopters over spenders.

For potential Trump-era interventions (capping inflation at 4% and unemployment at 5%), mid-caps offer value. The "Mag 7" tech giants’ market cap now dwarfs the combined small-cap Russell 2000 and mid-cap S&P 400, making the latter cheaper. Cyclical "Main Street" sectors—homebuilders, retail, paper, transports, REITs—are poised for relative upside under probable fiscal stimulus.