Michael Hartnett, a strategist at Bank of America (BAC) known as “Wall Street’s most accurate strategist,” recently released a research report stating that in the current market environment, one of the strategies with a higher probability of success is to actively buy consumer stocks and software stocks, which have been experiencing sustained selling this year. He believes this move aims to bet on the “policy panic emergency package” that the Trump administration may introduce to avoid an economic recession, while also capturing the potential oversold rebound in software stocks driven by a in risk appetite and AI technology.
In his report, Hartnett indicated that once the geopolitical conflict in the Middle East is initially resolved, President Trump is likely to push for a series of stimulus policies to protect American consumers from an economic downturn amid higher inflation and to boost his relatively low approval ratings. Bank of America has listed consumer stocks as the “most favored contrarian long” theme amid the current market volatility. The core logic is not that consumer fundamentals have bottomed out, but rather an anticipation that the White House, faced with recession risks and cost-of-living pressures following a easing of Middle East tensions, will introduce stimulus policies to shore up consumption.
The report noted that although the “Bull & Bear Indicator” has retreated from the extreme optimism zone, the key contrarian entry point has not yet truly materialized. However, the relative performance of the consumer sector compared to the S&P 500 index is nearing historical lows, comparable to levels seen during the COVID-19 pandemic and the global financial crisis. Research from SentimenTrader also suggests that now might be an opportune time to buy consumer stocks on dips, with relevant indexes showing significant average gains over the following year after specific oversold signals. The chief market strategist at Nationwide also believes that once uncertainty eases, the consumer sector is likely to be among the first to rebound.
In addition to consumer stocks, BofA’s strategy team has also identified software stocks, which have been pressured this year by the pessimistic narrative of “AI disrupting everything,” as another highly attractive contrarian long opportunity. Hartnett emphasized that after a sharp valuation decline, long-term fundamentally sound platform-based software giants are presenting a rare “bottom-fishing moment.” The report suggests that platform companies deeply integrated with cutting-edge AI technology and boasting strong customer stickiness may be the first to see valuation recoveries, potentially driven by policy stimuli.
Fund flow data also shows positive signals, with recent indications of “marginal short-covering” in software stocks after weeks of selling by hedge funds. Another Wall Street major, Jefferies, also noted in a report that software giants such as Microsoft (MSFT), Snowflake (SNOW), and Oracle (ORCL), which possess deep data assets and core operational processes, have been unjustly sold off due to the “AI disruption” pessimistic tone. Their moats may actually be strengthened with the aid of AI technology. In contrast, some single-function SaaS vendors with weaker moats face the risk of disruption. A senior portfolio manager at Allspring Global Investments also stated that the long-term investment value of companies like Microsoft is becoming evident, and current market concerns are creating long-term holding opportunities for patient investors.
