Bitcoin, Banks, Brokers Will Decide Next Big Market Move, Says BofA's Hartnett

Global markets are on the verge of a decisive move and Bank of America's chief strategist Michael Hartnett says the next big wave will be revealed through the "three B's": brokers, banks and Bitcoin BTC/USD.

In his latest Flow Show note shared Friday, Hartnett warned that financial markets are "coiled" for a major breakout or breakdown, with investor sentiment split between soft-landing optimism and policy-induced blow-off risk.

BofA's Hartnett Sees Markets At Tipping Points

According to Hartnett, the key to interpreting the next move will be watching three main markets: brokers – as tracked by the iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI –, global financial stocks – as tracked by the iShares Global Financial ETF IXG, and Bitcoin.

If they break higher from current resistance levels, the bulls win; if not, expect a sharp reversal.

"Double tops in risk leaders = very bearish, clean upside breaks = very bullish," Hartnett said, describing the technical setup as one of the most pivotal in 2025.

Peak Tariffs, Bear Dollar, Bull Gold

Hartnett believes the U.S. has hit "peak tariffs" and sees the weaker U.S. dollar as an intentional policy tool to support domestic manufacturing, which now accounts for just 8% of total payrolls.

The DXY index failing to break above 100 reflects this bearish dollar view, which in turn favors gold, emerging markets and international equities.

Gold is up 25.4% year to date, while the U.S. dollar is down 8.5%, and government bonds have returned 5.4%. Equities are up 5.6%, but recent outflows signal growing caution.

Bubble Building? Watch Bond Yields And The Magnificent 7

Hartnett still favors buying Treasuries at 5% yields, gold as a hedge for a weaker dollar, and international stocks over U.S. large caps.

Yet, he sees a rising risk that U.S. policymakers may pivot toward what he dubs a "bigger bubble" effect: cutting tariffs, taxes and interest rates to mask fiscal instability.

He warns that if the U.S. embraces full-blown stimulus to stabilize debt-to-GDP, global asset allocators may rotate back into narrow equity bubbles, especially AI and crypto.

The Magnificent 7 are already trading at 42x trailing earnings, up from the March lows. Historical equity bubbles have peaked around 58x trailing P/E and 244% total gains, suggesting another 30% upside is technically possible.

Yet, history also shows that bond yields rose in 12 of the past 14 major bubbles, undermining the typical stock-bond relationship. U.S. 30-year real yields – which are the result of nominal yields minus inflation expectations – are now near 3%, the highest since 2008 — a level Hartnett says could eventually burst the bubble.

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Image created using artificial intelligence via Midjourney.