Must Read Research
Also featuring commentary from Global Economic Weekly
June 22, 2025

Candace Browning, Head of BofA Global Research
Markets are shifting gears to favor international equities, but we discuss why the U.S. remains very much in the race. This week, we unpack how fund managers’ overall sentiment is middle of the road despite 20-year lows in U.S. dollar sentiment and discuss why hedges could make sense in an AI-fueled buy-the-dip environment.
The broadest measure of fund manager survey (FMS) investor sentiment has risen back to pre-Liberation Day “Goldilocks Bull” levels but isn’t worryingly exuberant, according to Chief Investment Strategist Michael Hartnett.
Beneath the surface, however, there are some extreme views. Investors are the most underweight the U.S. dollar in 20 years, and relatedly, “long gold” is perceived to be the most crowded trade for the third month running. This follows 24 straight months where “Long Magnificent 7” was viewed as most crowded. Consistent with the dollar bearishness, a majority of respondents expect international stocks to be the best performing asset over the next 5 years. Investors today have the largest overweight in Eurozone and emerging market (EM) stocks and the largest underweight in the U.S. A much greater portion of investors expect the “Big Beautiful Bill” to increase the deficit (81%) than to increase growth (33%). Considering sentiment and positioning, contrarian trades include long U.S. dollar, short gold and in equities, long U.S. and short EU.
Investors rotating toward international equities face the risk that the U.S. AI bubble continues to inflate, according to Equity Derivatives Strategy.
But the potential for escalation in the Middle East adds another downside risk to U.S. equities. Head of Global Equity Derivatives Research Ben Bowler and team believe the risk to U.S. equity returns is in both tails of the distribution and suggest that investors hedge these scenarios. As for upside, buy-the-dip (BTD) could continue to reign. BTD has been structurally attractive since Fed Chair Greenspan introduced the Fed put in 1987, but this year we’ve witnessed historically strong returns after S&P down days. There are parallels between today’s environment and the Internet bubble of the late 1990s. In the 1990s and today, BTD performance improved with time and Ben Bowler believes we could see further improvement as the AI bubble inflates further.

Claudio Irigoyen, Head of Global Economics, BofA Global Research
Escalation in the Middle East is a risk to the global outlook
While trade de-escalation has mildly improved the outlook, we are hardly out of the woods yet. Still elevated trade policy uncertainty now meets increased geopolitical tension in the Middle East amid the escalation of tensions between Israel and Iran and the latest U.S. involvement. Further escalation in the conflict could become a headwind.
Oil prices quickly are taking notice
Shortly after the Israel-Iran conflict erupted, oil prices jumped and have remained elevated since. Markets will be attentive to the consequences of the latest developments during the weekend, including potential disruptions to shipping prices and global energy supplies via the Strait of Hormuz. In fact, global shipping prices have also been on the rise and could increase further in the current context.
Stagflationary risks, once again
All of this would amount to a stagflationary shock at a time when inflation is still above target in most regions (and compounds with tariffs in the U.S.). Energy makes up a large share in consumption baskets, frequently larger than 10%, especially in emerging markets but not much less in Europe. In the U.S., beyond the direct impact on inflation, gas prices are a good indicator for inflation expectations, which have already risen.