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This is my take on the key message from BofA’s Michael Hartnett’s latest missive. And I would expect to see many of these themes filter into this week’s market commentary.
After weeks spent wrestling the tape into a clean macro framework, it becomes obvious that the effort itself has started to look misplaced. This is a market that has continued to levitate, almost on cue with Michael Hartnett’s late March call at the lows, shrugging off geopolitical flareups and macro crosscurrents as if they belong to a different cycle entirely. At some point, the analyst stops forcing coherence onto something that refuses to be explained. The result is telling: Hartnett’s latest note, Boom Loop, comes through shorter, tighter, almost resigned to the idea that this tape is no longer waiting for validation from fundamentals. It is moving first and asking questions later, if at all.
So, where does a trader focus when the market has effectively detached from the traditional anchors? The answer, at least over the past week, starts with the macro data that still matters at the margin. US GDP for the first quarter printed at 2.0%, but the composition tells the real story, with roughly 75% of that growth tied directly to AI investment. That is not just a contribution; it is a concentration risk masquerading as expansion. Pull back the lens and the scale becomes even more striking: nominal GDP is tracking a 75% surge over seven years, climbing from $20 trillion in 2020 toward a projected $35 trillion by 2027. This is less a steady economic progression and more a capital cycle being force-fed through one dominant channel, a boom that is increasingly self-referential, feeding on its own momentum, much like the market that is pricing it.
Layered on top of that nominal surge is a quiet but critical regime shift in inflation. The world has moved from a 2% anchor in the 2010s to something closer to 4% in the 2020s, while real growth barely nudges higher from roughly 2½% to 2¾%. In other words, the lift is coming less from true productivity and more from price and scale, and markets are behaving exactly as they should in that environment. Equities and commodities thrive in nominal expansions, which is why the trade has coalesced around the “Cs” complex: commodities, chips, consumer, and China, all beneficiaries of liquidity, capex, and pricing power. Bonds, by contrast, are left to absorb the consequences through a steeper curve, while the US dollar finds itself in a more conflicted position, no longer the clean winner it once was in a low inflation, scarcity-driven world.
From there, the focus shifts naturally to what Hartnett frames as the “tale of the tape,” where the so-called boom loop has become the dominant force shaping price action. This is not a traditional cycle being pulled forward by organic demand; it is a policy-driven feedback system. Governments are leaning against the headwinds of deglobalization, rising populism, and widening inequality with fiscal expansion and targeted investment, effectively hardwiring growth into the system. The result is a market that no longer waits for confirmation but instead reflexively prices the continuation of that support, a loop where policy begets growth, growth begets flows, and flows reinforce the very conditions policymakers are trying to sustain.
That loop is being fueled with a scale of policy support that would have been unthinkable a decade ago. Government spending has surged roughly 60% since 2020 and is still accelerating, with another 15% increase penciled into the proposed FY27 budget. This is no longer cyclical stimulus; it is a structural intervention, capital being deployed with intent, not just to stabilize growth but to shape the outcome of the next economic regime. What sits underneath it is a strategic pivot where geopolitics is no longer separate from markets but fully embedded within them.
The playbook is increasingly clear. Inflationary trade, industrial, military and financial policies are being used as tools of statecraft, not just economic management. Supply chains are no longer optimized for efficiency but for control, as nations position themselves to secure dominance across the inputs that matter most. Chips, energy, rare earths, and critical minerals have all become strategic assets, the raw materials of the AI era, and the battleground has shifted from price discovery to supply ownership. This is where the boom loop finds its deeper logic: policymakers are not just responding to markets, they are actively constructing them, directing capital toward sectors that define competitive advantage, and in doing so creating a feedback system where fiscal expansion, geopolitical strategy, and market performance are all pulling in the same direction.
In that framework, there is really only one pressure point that can snap the loop, and it does not sit in equities, commodities, or even geopolitics. It sits in the bond market. Hartnett’s view is that the 2020s boom loop, this self-reinforcing cycle of fiscal expansion, policy direction, and market momentum, ultimately lives or dies on the cost of money. As long as rates rise in an orderly fashion, the system can absorb it, reprice it, even thrive on it through nominal growth. But a disorderly bond selloff, a true collapse in duration, would not just tighten financial conditions, it would fracture the very mechanism feeding the loop.
That is where his “Price is Right” framework comes into play. The 30-year Treasury yield at 5% stands as the line in the sand, the market’s version of a defensive perimeter. Push toward it, and you test positioning, risk tolerance, and valuation discipline across every asset class. Break it decisively, and you force a repricing of everything built on the assumption that capital remains relatively contained in cost. Yet for now, the expectation is that the line holds. Not because the risks are absent, but because the same forces driving the boom loop, policy support, managed liquidity, and the strategic need to sustain growth, are equally incentivized to prevent a disorderly unwind in bonds. In that sense, the system is circular by design: the one thing that can break it is also the one thing policymakers are most motivated to keep intact.
And the reason that line is expected to hold is not accidental; it is being actively managed. The current administration understands that the Treasury market is not just another asset class; it is the foundation stone of the entire boom loop. If that cracks, everything above it starts to wobble. So what you are seeing now is a series of quiet maneuvers designed to keep the bid intact, particularly from the largest external holders. Asia and the Middle East, sitting on roughly $3.8 trillion in Treasuries, are not just passive investors; they are strategic counterparts, and maintaining their engagement through FX support and policy alignment has become part of the broader playbook.
There is also a political layer running beneath the surface. Inflation is no longer just an economic variable; it is a sentiment gauge, and right now that gauge is flashing uncomfortably low. With Trump’s inflation approval hovering around 29%, barely above the prior Biden cycle lows, there is a clear incentive to prevent any renewed spike in yields that would tighten financial conditions and reignite price pressures in a way that feeds directly into voter perception. In that sense, stabilizing the long end of the curve is not just about market functioning; it is about narrative control. Keep yields contained, keep financial conditions from tightening too abruptly, and the broader perception of inflation can be managed, or at least prevented from deteriorating further.
So the loop tightens once again. Foreign demand is encouraged, the bond market is backstopped indirectly, and the political imperative aligns with the financial one. The system feeds itself, reinforcing the same dynamic that has carried markets higher since late March, where policy, positioning, and price action are no longer separate forces but different expressions of the same underlying objective: keep the engine running, and above all, keep the cost of capital from becoming the thing that finally shuts it down.
But that stability comes with a tripwire, and history is very clear on where it sits. When long-end yields stop rising in an orderly grind and instead lurch higher in violent bursts, that is when booms lose their balance. Hartnett’s “Maginot Line” at 5% on the 30-year is not just a level, it is a fault line. The past offers a clean pattern: Japan’s bond market ripped higher by roughly 230bps into the 1989 peak, US Treasuries surged 260bps into the late 1999 unwind, and China saw a 150bps spike ahead of the 2007 top. These were not gentle repricings; they were air pockets in duration that forced everything else to reanchor. If that kind of move starts to take shape again, then the narrative shifts abruptly, and what has been a self-sustaining boom loop begins to morph into something far less stable, the door to doom creaking open not because growth disappears, but because the cost of capital reprices too quickly for the system to absorb.
Setting that tail risk aside, the tactical map for May reflects a market that has run hard and unevenly. On one side sit the crowded longs, stretched well above both their 50 day and 200 day averages, where positioning is no longer just constructive but vulnerable. Oil proxies like USO, the semiconductor complex through SMH, Taiwan via EWT, broad tech in XLK, and the AI thematic more broadly have all become consensus expressions of the boom loop, trades that have worked so cleanly they now carry the risk of their own success. These are not broken trades, but they are extended ones, the kind that react sharply when momentum pauses or even slightly disappoints.
On the other side of the ledger are the areas that have been left behind, pockets of the market that are priced for disappointment and therefore wired to respond asymmetrically to any shift in tone. China tech through KWEB, global defense names captured in SHLD, healthcare via XLV, and even long-duration bonds like ZROZ sit in that camp. These are not leadership trades today, but they do not need to be; they simply need a marginal improvement in the narrative to trigger a reflexive bounce, because the bar has been set so low.
Running through it all is the cyclical pulse, and here Hartnett returns to a familiar anchor: the US ISM manufacturing index. In a market increasingly detached from traditional signals, this remains one of the few gauges that still carries weight across asset classes. The expectation that it pushes from the low 50s toward 60 is not just a data point, it is a confirmation mechanism for the boom loop itself. A move like that reinforces the idea that the cycle is reaccelerating under the surface, giving fundamental cover to a market that has already been trading as if that outcome were a given. In that sense, even the data is starting to chase the tape, falling into line behind a system that continues to price tomorrow’s strength long before it shows up in today’s numbers.
Within that cyclical framework, the opportunity set begins to rotate away from what has already been fully priced and toward what is still catching up. If ISM does push higher as expected, the cleaner expression is not in the crowded winners that have already front run the move, but in the laggards where the sensitivity to a manufacturing upswing remains underappreciated. China, Europe, US small-cap proxies, and the materials complex all sit in that camp, areas where positioning is lighter, expectations are lower, and the torque to improving data is still intact. These are not momentum trades, they are catch up trades, the parts of the market that have yet to fully plug into the boom loop but stand to benefit as it broadens.
By contrast, Japan, Korea, emerging markets ex China, and especially the semiconductor complex, look far more mature in the cycle. These markets have not just anticipated a stronger ISM print, they have effectively priced it in full, riding the wave of capex, AI demand, and export leverage well ahead of the data. That does not make them outright shorts, but it does shift the risk-reward. The asymmetry is no longer in their favor, as upside now requires an even stronger surprise while downside can be triggered by something as simple as expectations being met rather than exceeded.
So the playbook evolves. The boom loop remains intact, but the leadership within it begins to rotate, away from the obvious winners that have already absorbed the narrative, and toward the quieter corners of the market where the next incremental buyer is still waiting for confirmation.