Bank of America Chief Investment Strategist Michael Hartnett Talks Market Reaction to the Iran War

Summary

Bloomberg Talks: Michael Hartnett on Market Reaction to the Iran War

Podcast: Bloomberg Talks
Host: Bloomberg (Francine Lacqua)
Guest: Michael Hartnett, Chief Investment Strategist, Bank of America
Date: March 19, 2026

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Episode Overview

In this special episode, Bloomberg’s Francine Lacqua interviews Michael Hartnett, Chief Investment Strategist at Bank of America, during the bank’s capital markets conference in Paris. The conversation centers on the escalating market volatility in reaction to the Iran War, drawing historical parallels, dissecting investor behaviors, and exploring the outlook for oil, equities, and policy risks. Hartnett brings sharp insights into whether the market is facing a temporary supply shock or something more enduring, and offers strategic perspectives for investors grappling with uncertainty.

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Key Discussion Points and Insights

1. Comparing 2026 Market Turmoil to Past Crises

• Historical Parallels:
  • Hartnett notes that current price action and underlying credit tremors are reminiscent of the run-up to the 2008 financial crisis, but highlights a key difference:
    • In 2008 the oil shock was demand-led (e.g., by China and India), whereas today’s situation is a supply shock akin to the crises of 1973, 1979, and 2022.
  • Quote:
    • "You definitely have an environment where oil prices are rising to high levels... but the supply shocks are more sort of '73, '79, 2022." — Francine Lacqua (00:55)

2. Market Complacency and Investor Positioning

• Investor Behavior:
  • Investors entered the crisis long equities and assumed a short-term conflict ("everyone thought it was a short war"), betting on an eventual policy shift.
  • "I wouldn't say it's complacency, but everyone thought it was a short war... We're all. So I think what's happened the last couple of days is kind of like people said, I don't want to sell because the Policy will change. Right. And it's now actually we're going to have to sell to change the policy." — Francine Lacqua (01:46)
  • The market appears to have "flip-flopped" from waiting for policy interventions to actively positioning for ongoing weakness.

3. Mispricing Risks and the Pursuit of a “Ceasefire”

• Wishful Thinking on Resolutions:
  • Hartnett observes the market was priced for a short resolution, but diplomatic and geopolitical signals never supported that view.
    • "The market's looking for an off ramp. The market's looking for a cease fire. The market's looking for an end. The market's desperate for the oil price to not move in an exponential way to the upside..." — Francine Lacqua (02:37)
  • Tightening financial conditions predate the war, and with oil soaring, the odds of an early policy pivot are diminished.

4. Asset Valuations and Strategic Opportunities

• Equities, Bonds, and FX:
  • Equities are "still look rich relative to where they could do in a genuine shock."
  • Investment levels to watch: "We’ve gone on record saying 6,600, you probably want to start nibbling at the S&P. I'd be buying the 30-year treasury above 5%. I'd probably be fading the DXY dollar index above 100." — Francine Lacqua (03:15)
  • However, these numbers could worsen before improvement is seen as market sentiment remains uncertain.

5. Oil Price Scenarios and Investor Triggers

• Extreme Outcomes?:
  • Hartnett tempers concerns of a runaway spike: "No, no. I mean those are levels predicated basically on this is ended in weeks, not months. If it's protracted or you get an additional sort of 20, 30, 40%. No, those levels are breaking. You're going to have to wait for much lower levels to engage certainly in stocks." — Francine Lacqua (04:02)

6. Policy Risk: Central Banks' Dilemma

• Central Bank Traps:
  • The risk of policy mistakes is real; Hartnett recalls the ECB hike in 2008 as a classic blunder.
  • "Markets stop panicking when policymakers and central bankers start panicking. I don't think the Fed... is going to hike, I think is nonsense." — Francine Lacqua (04:32)
  • On rate cuts: Hartnett predicts eventual easing but not imminently, especially with markets elevated and inflationary pressures strong.

7. Investment Ideas in a Stagflationary Environment

• Consumer and Commodities:
  • "The consumer, ironically, is what I would be nibbling at at this particular moment. No one loves the consumer... but to me, the consumer stocks are the ones that have really discounted stagflation." — Francine Lacqua (05:43)
  • Longer-term, commodities remain the most promising trade in inflationary times.
  • The political dimension emerges: Anticipation that Trump will pivot towards affordability to win midterms post-Iran.

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Notable Quotes & Memorable Moments

• On the investor mindset:

  • "We're all used to central banks wading in whenever there's a market problem and hey ho, off we go again...maybe you have to sort of like break that expectation a little bit first." — Francine Lacqua (04:50)

• On when to re-engage with risk assets:

  • "As I said earlier, the risk right now is that kind of those numbers need to get worse before they get better." — Francine Lacqua (03:15)

• On political strategy after Iran:

  • "...if you think post Iran, what has Trump got to do? He's got to win the midterms... by addressing affordability." — Francine Lacqua (05:43)

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Timestamps for Key Segments

• 00:45 – Start of interview; parallels to 2008 and historical oil shocks
• 01:42 – Discussion of market complacency and policy expectations
• 02:24 – Market’s search for a ceasefire, financial conditions debate
• 03:13 – Mispricing risk and asset allocation thresholds
• 03:58 – Oil price breakout scenarios
• 04:21 – Policy mistakes and central bank response
• 05:41 – Investment strategy: Consumer stocks and commodities

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Summary Tone and Takeaways

• The conversation is candid, fast-paced, and nuanced, weaving historical context with sharp market analysis.
• Hartnett and Lacqua avoid alarmism, stressing that while the war adds uncertainty, the biggest risk is complacency and an overreliance on central banks to bail out markets.
• Hartnett’s view: Wait for assets to cheapen further before adding risk and focus on areas already punished by stagflation—namely consumer stocks and commodities for longer-term plays.

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This episode is essential listening for anyone navigating 2026's financial turbulence, offering a realistic, actionable perspective anchored in both history and market psychology.

Transcript

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[Francine Lacqua]

bank of America's capital markets conference underway in Paris. Joining us now is Bloomberg's Francine Lacqua with a special guest. Good morning, friend.

[Michael Hartnett]

Good morning, John. I'm so happy to speak to Michael Hartnett of Bank of America. Michael, thank you for joining us. Look, you've said the markets are starting to resemble the run up to 08. What do you mean? And what are you looking at?

[Francine Lacqua]

Well, one big difference, of course, with 08 is that the oil shock there was demand led. You know, it wasn't supply led, it was China or India. So, yeah, you definitely have an environment where oil prices are rising to, you know, high levels, you know, back then, you know, the similarity perhaps is that you have these, you know, credit tremors sort of bubbling away in the, in the, in the background. So that's the similarity. And certainly the price action year today is fairly similar, but, you know, the supply shocks are more sort of 73, 79, 20, 22. And I think that the market generally has been coming into this thinking it's supply shock, it's short term and therefore it's going to be over pretty quickly. And I think that's the kind of revision that the market's going through in the last couple of days.

[Michael Hartnett]

Is that complacency? Are they too complacent? At what point does it start feeding through earnings?

[Francine Lacqua]

Well, I mean, it will feed into earnings without a question. But I think that coming into this, you know, people are long equities that they're hedged, but they are long. But I wouldn't say it's complacency, but everyone thought it was a short war. Yeah, everyone thought it would be folded earlier. And, you know, there's an election for Trump to win. You know, the market's too big to fail. You know, we've seen this script before. We don't want to sell. We're all. So I think what's happened the last couple of days is kind of like people said, I don't want to sell because the Policy will change. Right. And it's now actually we're going to have to sell to change the policy. Do you see what I mean? So it's kind of like it's flip flopped a little bit.

[Michael Hartnett]

But Michael, what was I thought was striking is that the market was pricing in some kind of short resolution in the shorter term. But actually if you read the geopolitics and if you read all the transcripts, that just wasn't there. So is the market looking for something?

[Francine Lacqua]

Yes, I mean, look, the market's looking for an off ramp. The market's looking for a cease fire. The market's looking for an end. The market's desperate for the oil price to not move in an exponential way to the upside, but actually, you know, back down. Because you know, the other thing that's been happening before this is that you've been having this tightening of financial conditions. Yeah. And so the market needs an easing of financial conditions, but the Fed finds it tough to deliver that if oils are in 5,200, you know. But I think ultimately you will get that easing of financial conditions. But this obviously delays it somewhat.

[Michael Hartnett]

What do you think is most being mispriced right now?

[Francine Lacqua]

Well, I think that if you look at the, you know, the broader markets, I would say that equity is still look rich relative to where they could do in a genuine shock where the Fed is not able to cut interest rates. I think that we've gone on record saying 6,600. You probably want to start nibbling at the S and P. I'd be buying the 30 year treasury above 5%. I'd probably be fading the DXY dollar index above 100. But as I said earlier, the risk right now is that kind of those numbers need to get worse before they get better. Because you look at the bank of America fund manager survey last week, people are not sure, you know, they're still, they're still bullish certainly on equities.

[Michael Hartnett]

So do you think oil does go to 150 and possibly 200? Those are the levels you mentioned.

[Francine Lacqua]

No, no. I mean those are levels predicated basically on this is ended in weeks, not months. If it's protracted or you get an additional sort of 20, 30, 40%. No, those levels are breaking. You're going to have to wait for much level, lower levels to engage certainly in stocks.

[Michael Hartnett]

I mean, what's the risk of a policy mistake by central banks? I know you've also said there was, you know, a hike in 2008 by the ECB that you said was the Worst possible policy mistake.

[Francine Lacqua]

Yeah, look, I was this sort of catchphrase sort of markets stop panicking when policymakers and central bankers start panicking. I don't think the Fed, I don't think the idea of the Fed is going to hike, I think is nonsense. I don't, I don't think that's going to happen.

[Michael Hartnett]

Will they cut?

[Francine Lacqua]

I don't think they're going to, I think they will eventually cut and again, I think that, you know, bills, they will high on oil price, they can't cut six months they cut with the stock market an all time high and corporate bonds at all time high. So but this is the history that we've all got in as the DNA. We're all the QE generation, we're all Gen qe, do you know what I mean? In that we're all used to central banks wading in whenever there's a market problem and hey ho, off we go again. So I think again, maybe you have to sort of like break that expectation a little bit first. But I think no doubt the puck now in the markets is moving like we need an easing of financial conditions, whether it's oil, whether it's yields, whether it's Fed, whether it's the dollar. And we're going to go down until the policymakers hear that and deliver that.

[Michael Hartnett]

So where do you put your money right now?

[Francine Lacqua]

Well, I think broader terms, as I said, I think the consumer, ironically is what I would be nibbling at at this particular moment. No one loves the consumer. Oil's up, you know, unemployment's rising, you know, all that. But to me, the consumer stocks are the ones that have really discounted stagflation. Yeah. And if you think post Iran, you know, what has Trump got to do? He's got to win the midterms. And you're not going to win the midterms by, you know, going to win the midterms by addressing affordability. Really he has to pivot to that just, you know, in a really dramatic way. And again, I think that affordability, you know, lower income consumer that everyone dislikes at that moment. That's probably where as a trade from a trading perspective, I think the best trading opportunity is longer term. However, I still think international commodities, you know, these are the true sort of secular bull markets of an inflationary 2020.

[Michael Hartnett]

Michael, thank you so much. Michael Hartman there from bank of America.

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