Investing.com — A dip in the below 6,600 is “kickstarting policy panic,” though current signals still show no evidence of bull capitulation or broader macro panic, Bank of America’s Michael Hartnett said in a note.

Hartnett expects the policy backdrop to evolve into broader support for markets. “We assume policy panic to avoid recession,” he wrote, recommending long yield curve steepeners alongside consumer stocks as the preferred trades.

Within equities, Hartnett highlighted Consumer Discretionary as a key opportunity, noting the sector is trading at relative lows similar to past crisis periods such as 2008 and 2020. He described the trade as a “fave contrarian long,” particularly among lower-income segments, tied to expectations of a post-war policy pivot aimed at addressing affordability pressures and weak approval ratings.

Hartnett believes investors should remain patient, saying “no rush, no greed,” while arguing that gold and international equities are likely to regain leadership as the U.S. dollar weakens and fiscal expansion outside the U.S. builds

More broadly, the strategist said markets remain caught between competing “pain trades,” with the next major move either toward new highs led by private credit or a deeper decline driven by semiconductors. He said that current indicators do not yet show the kind of capitulation or macro deterioration typically associated with durable market lows.

Hartnett also pointed to a shifting macro regime, with markets rotating from late-2025 liquidity and AI-driven optimism toward stagflationary dynamics and potentially recessionary conditions in 2026. 

Fund flow data showed investors turning more defensive in the latest week. Bond funds were the only major asset class to see inflows, taking in $2.7 billion, while equities recorded $29 billion in outflows, according to BofA.

U.S. equities led the declines with $23.6 billion in outflows, the largest in 13 weeks, while European equities saw $3.1 billion pulled, the biggest outflow since April. Materials funds posted a record $10.5 billion in redemptions.

Elsewhere, money market funds saw $35 billion in outflows, marking the first and largest withdrawal in 10 weeks, while gold funds lost $6.3 billion, the largest outflow since October. Crypto funds also saw $500 million in outflows.

In fixed income, demand was concentrated in shorter-duration assets. Short-term bonds attracted $13.3 billion, the third-largest inflow on record, while long-term bonds saw $4.7 billion in outflows, the second-largest ever and the biggest since March 2020. High-yield bonds extended their losing streak, with three-week outflows reaching $13.5 billion.

Regionally, emerging market equities returned to inflows with $700 million added, while Japan extended its inflow streak to seven consecutive weeks with $400 million.