Buying commodities and selling the U.S. dollar makes sense as a trade now, with the likelihood for interest rate cuts increasing and the need for raw materials accelerating, according to Bank of America's Michael Hartnett. The bank's chief investment market strategist made the case for the trades in his weekly market note, reasoning that tariffs, geopolitical unrest and a dollar "buyers strike" makes the case against the greenback. "Fed pressure to cut to grow [and] U.S. policymakers will trade weaker dollar rather than higher bond yields to attract foreign capital," Hartnett wrote. The Federal Reserve is preparing to transition to a new chair this year as incumbent Jerome Powell is set to step down as soon as May. His nominated successor, former Governor Kevin Warsh, is expected to push for lower benchmark interest rates along with a reduction in the central bank's fixed income holdings. At the same time, Hartnett thinks conditions are ripe for more gains in commodity prices as a hedge against risk, inflation and a potential bear market in the dollar for asset allocators. Dollar-denominated assets are cheaper in relative terms when the U.S. currency weakens. "Plus geopolitics now driven by need to monopolize commodities … who owns the chips, rare earths, minerals, oil, wins the AI war," the strategist added. Along with those two trades, Hartnett also advocates buying China — the CSI 300 Index has gained just 2.5% this year — and consumer discretionary stocks. Consumer stocks have "priced in stagflation more than any other sector and [are] our fave contrarian long to trade Trump post-war pivot to address affordability & slump in approval ratings," Hartnett wrote. Consumer discretionary stocks have lagged the S & P 500 this year, gaining about 3%.
