Global Asset Rotation Looms: Policy Shift to Cost of Living Drives Divergent Markets through 2026 (BAC-US)

U.S. Bank strategist Michael Hartnett and colleagues warn a politically driven rotation is underway, with capital shifting away from overpriced assets toward实体经济 and broad households. Since last October, silver +56%, crude oil +9.5%, and global equities +8.7%, while major U.S. stocks -0.2% and Bitcoin -25%. Three structural changes are emerging: the start of a large-cap growth to small-cap value rotation; a narrative shift in AI from awe to reckoning, pressuring tech and software; and a positive correlation between the yen and Nikkei 225, signaling potential multi-year bull phases but with risk from yen above 145 and broader deleveraging. Unless major tailwinds unwind—such as bank sector credit spreads widening, AI capital expenditures contraction, or关税 shifts—the rotation is expected to persist. The Bank’s Bull/Bear Composite stands at 9.4, above the 8.0 alert level, with the FOMC survey due on Feb 17 likely to lift cash balances from 3.2% to 3.8%+ as net bond and tech exposure收缩. Emerging markets and small-cap value may gain leadership, with China and India notably underweighted in global portfolios. Chinese bank shares near 8-year highs, signaling a potential bond-to-equity rotation in China.