Trump’s inflation problem deepens; utilities next in line: BofA’s Hartnett

Investing.com -- Global and U.S. equity funds recorded their biggest weekly inflows since December, according to Bank of America.

Investors poured $68.4 billion into global stock funds in the week to Sept. 17, including $57.7 billion into U.S. equities.

Emerging markets drew $7.6 billion, the most in five months, led by $5.4 billion into China.

Cash funds saw $4.8 billion of outflows, their first in seven weeks, while bond inflows of $14.3 billion marked the smallest tally in three months.

Strategists led by Michael Hartnett said the current backdrop underscores the political risks facing President Donald Trump, whose disapproval on inflation is at 59%.

“Asset price inflation begets consumer price inflation,” he wrote, noting U.S. household equity wealth has risen by $6 trillion this year.

Hartnett warned that a second wave of inflation would be “very risky before ’26 midterms,” likely prompting Washington to intensify price controls in sensitive sectors such as “Big Pharma & Big Energy.”

With power bills rising, “Big Utilities [are] next most vulnerable sector,” Hartnett said.

Hartnett framed the rally in the Magnificent Seven tech stocks as still having room to run, drawing parallels with historic equity bubbles. The group is up about 223% from 2023 lows with a trailing price-to-earnings multiple of 39, BofA highlights, compared with average bubble gains of 244% and multiples of 58.

Investors looking to navigate the backdrop could use a barbell strategy — pairing exposure to expensive U.S. tech with value trades such as Brazil, U.K., and global energy.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads.

Other trades highlighted by Hartnett include shorting corporate bonds of bubble stocks, or bonds more broadly, as inflation pressures eventually push policy rates higher.

Fixed income flows reflected the cautious stance. Investment-grade bond funds attracted $6.7 billion, while high-yield took in $2 billion. Emerging-market debt drew $0.3 billion, extending a 22-week streak, and municipal bond inflows continued for a 15th week.

By region, Japan funds saw small inflows for a third week, while Europe posted its first outflow in three weeks.

Which stock should you buy in your very next trade?

AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Year to date, 3 out of 4 global portfolios are beating their benchmark indexes, with 98% in the green. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar?

Unlock ProPicks AI