A research report from Michael Hartnett, a Bank of America strategist often referred to as "Wall Street's most accurate strategist," suggests that one of the currently higher-probability strategies for investors is to actively purchase consumer stocks and software shares, which have faced sustained market selling pressure this year. This strategy is a bet on a potential "policy panic rescue package" that might emerge as a Trump-led administration strives to avert a US economic recession, coupled with a potential rebound in oversold software stocks driven by recovering market risk appetite and fundamental expansion fueled by artificial intelligence technology.
In a report distributed to clients, the veteran Wall Street strategist indicated that once Middle East geopolitical conflicts see initial resolution, US President Donald Trump is likely to push for stimulative policy measures related to consumer spending and broader economic growth. This would aim to shield American consumers from potential economic downturn impacts amid higher inflation and boost his approval ratings, which have hit new lows among voters.
The latest Bank of America report shows that while the "Bull & Bear Indicator" has retreated significantly from extreme optimism levels, and a "sell signal" triggered in December has ended, key contrarian buying signals—whether more thorough deterioration in market breadth, rising cash positions, or clearer macroeconomic panic—are not yet firmly in place. However, Hartnett's team has begun labeling "consumer stocks" as their "most favored contrarian long" theme amidst current market risk-appetite fluctuations and ongoing stock market volatility due to geopolitical factors. The core logic isn't that consumer fundamentals have completely bottomed out, but rather Hartnett's anticipation that the White House, post Middle-East conflict de-escalation, will be compelled by recession risks, cost-of-living pressures, and midterm election considerations to introduce "policy panic"-style measures aimed at supporting consumer spending against a backdrop of higher energy inflation.
In the same report, Hartnett's strategy team also listed software stocks, which have been heavily impacted this year by pessimistic narratives around "AI disruption," as another top contrarian long opportunity. They emphasized that after sharp valuation declines, platform software giants with long-term stable fundamentals are presenting a rare "bottom-fishing moment," or a textbook entry point for the classic "buy the dip" market strategy.
Hartnett's team wrote in the report: "We assume there will be policy panic aid implemented to avoid falling into an economic recession." He suggested Trump will undertake a "post-conflict policy pivot to address affordability issues and a series of challenges brought by declining approval ratings." He specifically highlighted potential stimulative fiscal policy measures centered around concepts like universal basic income to protect American workers and consumers broadly.
The November midterm elections, which will determine control of Congress, are forcing Trump to address growing public dissatisfaction with rising living costs, particularly the resurgence of gasoline price inflation, a dissatisfaction exacerbated and accelerated by energy inflation stemming from conflict with Iran. Latest polls cited by Bank of America show that as soaring costs for housing, groceries, and utilities squeeze wallets, voters within the MAGA camp are increasingly turning negative towards the President's economic agenda.
Hartnett stressed in the report that US consumer stocks are among his "most favored contrarian long" trading themes, primarily due to market fears about rising inflation and further economic slowdown or even recession. Relative to the S&P 500, the sector is currently trading near historically low levels, comparable to periods during market crises like the COVID-19 pandemic and the Global Financial Crisis.
Meanwhile, the latest research from SentimenTrader indicates that now might be an excellent time to "buy the dip" in consumer stocks. Their report shows that over 50% of stocks in the S&P 500 Consumer Discretionary index are trading more than 20% below their 252-day highs. The firm states that such a scenario has historically resulted in average gains of about 14% over the subsequent year; in 23 out of the previous 28 occurrences, the index proceeded to move higher.
Mark Hackett, Chief Market Strategist at Nationwide, stated that once uncertainty begins to ease, the consumer sector could be one of the earliest market segments to rebound. He said: "This sector gets psychologically battered when investors move to the sidelines or wait for a market bottom. If the headwinds we face are largely resolved, this sector will absolutely be seen as a proxy for overall investor and consumer sentiment, and thus should perform quite well fairly soon after things normalize."
Additionally, he recommended going long on a steepening US Treasury yield curve trade, a classic investment strategy that profits from a widening spread between short and long-term interest rates, to position for potential monetary or fiscal policy responses in a post-conflict scenario.
The latest fund flow data highlighted by Bank of America strategists shows investor concerns about the equity market outlook are beginning to materialize. In the week ending March 25, US equity funds experienced outflows of approximately $23.6 billion, the highest in 13 weeks, according to EPFR data. Simultaneously, European equity funds recorded their largest outflow since April, amounting to $3.1 billion.
Hartnett stated that software stocks, which have suffered sharp declines this year, are another "most contrarian valuable long theme" favored by Bank of America. The bank suggests that platform software giants deeply integrated with cutting-edge AI technology, with usage-based or value-based pricing models, and strong customer stickiness, could potentially lead a strong valuation recovery ahead of other sectors and software peers, driven by a series of post-conflict economic stimulus measures from a Trump administration.
Regarding software stocks, early-week fund flow data indicates that after weeks of deleveraging and selling, hedge funds focused on high-leverage strategies appear to be showing initial signs of "marginal covering"—covering positions both in large-cap tech giants and in software stocks previously battered by the "AI disruption" narrative.
A recent report from another Wall Street firm, Jefferies, identified software giants like Microsoft (MSFT.US), Snowflake (SNOW.US), and Oracle (ORCL.US)—which aggregate data assets and integrate "AI + core operational workflows" with solid fundamentals—as their top stock picks in the global enterprise software space. They emphasized these companies have been unduly sold off due to the pessimistic "AI disrupts everything" narrative dominated by AI agentic workflows like Claude Cowork and OpenClaw.
The cloud infrastructure, system access points, identity and security, data foundations, distribution channels, and deeply embedded operational workflows possessed by giants like Microsoft and Oracle represent processes highly difficult for AI to replicate. As Jefferies' report conveys, enterprise AI budgets are likely to flow primarily to large cloud platforms and the model layer, meaning the moats of platform software giants could become even stronger with the aid of advanced AI technologies like agentic workflow tools, while single-function SaaS companies face significant disruption pressure.
In other words, as enterprises transition from AI experimentation to formal deployment, budgets will prioritize platform software giants closest to core systems, core data assets, and core workflows, rather than single-point functional layer SaaS solutions.
In contrast to potential AI winners like Microsoft and Oracle, Jefferies analysts highlighted in their report that SaaS providers such as Adobe (ADBE.US) and Docusign (DOCU.US)—whose product functionalities are more susceptible to being subsumed by native model capabilities, have weaker moats, high customization, and where customers could potentially rebuild single functions using AI agents—might face "destructive impact" from advanced AI technology, with a very high probability of being completely disrupted.
Jake Seltz, Senior Portfolio Manager at Allspring Global Investments, said in an interview on Friday: "I think Microsoft stock holds significant long-term investment value. Its AI strategy will ultimately prove correct, and I believe it will be largely insulated from the most severe fears of AI disruption. Meanwhile, these concerns are creating opportunities for long-term holders, especially if one is willing to be a bit patient."