By Jules Rimmer
Bank of America’s Hartnett thinks that oil and energy stocks are the best contrarian bet for 2026 after a long period of underperformance
The Trump administration’s “run it hot” economic policy combining political populism and inflationary growth will see commodities boom and outpace bonds next year, according to Bank of America chief investment strategist Michael Hartnett.
Metals prices, natural-resource stocks GNR and Latin American stocks – the latter a proxy for commodities – all are breaking out already.
Metals have broken out to new highs
Exposure to commodities is the best vehicle to express the “run it hot” policy that the White House clearly intends to follow in the run-up to the mid-term elections next November, he says.
Bullish investor sentiment at present, Hartnett says, is predicated on the trifecta of “puts” or market-supporting factors provided by the Fed, the White House and Generation Z, the current crop of younger retail investors who are fully inculcated with the buy-the-dip mentality.
Hartnett compares the decade of the 2010s, when governments and central banks tried to recover from the global financial crisis with monetary excess and fiscal austerity, to the post-pandemic era that’s been characterized by fiscal excess and zero-interest policies are generally a thing of the past.
Moreover, as Hartnett points out, globalization peaked in the last decade. For him, this zeitgeist translates into commodities “smoking” bonds and he regards the “despised oil/energy” sector as the best contrarian trade out there, after a long period of underperformance. The State Street Energy Select Sector SPDR ETF XLE, which includes Exxon Mobil (XOM)and Chevron (CVX), has tumbled 46% this year.
Already Hartnett finds commodities’ rolling ten-year returns are the highest versus bonds since 2008.
Commodity 10-year rolling returns are the highest vs. bonds since 2008.
Energy stocks have shown signs of life since the autumn, benefiting from light institutional weightings, as well as theme of data centers’ insatiable appetite for energy in the AI capex boom.
There are several factors behind Hartnett’s pessimism towards bonds and they include the long period of central banks cutting rates coming to an end in the instance of Japan and Australia; rising bond yields in China BX:AMBMKRM-10Y and Japan BX:TMBMKJP-10Y ; and historical comparisons, because after the seven nominations of new Fed chairs since 1970, in the three months that followed, yields rose on each occasion.
-Jules Rimmer
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12-05-25 1033ET
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