This 'sleep like a baby' portfolio strategy is having its best year in nearly a century, BofA's Hartnett says

The market is rewarding assets that benefit from a steeper nominal-growth regime: commodities, value-linked cyclicals, and balance-sheet-sensitive rate trades. The second-order effect is that this is not just an asset-allocation story; it is a cross-asset reflation bet where the winners are the sectors that monetize scarcity, pricing power, and duration optionality, while long-duration defensives lose relative appeal even if headline indices keep grinding higher.

The most underappreciated implication is that commodities are no longer just a hedge against inflation spikes; they are increasingly a hedge against geopolitics and strategic industrial policy. If governments continue to treat energy, chips, and critical minerals as national-security inputs, then capex, inventories, and reserve-building become structurally supportive for miners, drillers, and industrial suppliers over the next 6-18 months, with volatility compressing on pullbacks because policy actors now have an incentive to defend domestic strategic chains.

Consensus may be underestimating how much of this rally is being built on positioning rather than fundamentals. Elevated hedging despite higher equity indices suggests investors are participating but not fully committed, which often leaves room for a squeeze if macro data stays constructive; however, that same fragile sentiment means the trade can unwind quickly on any growth scare, ceasefire, or policy turn toward disinflation. The key reversal risk is that a commodity-led nominal boom can stall if tighter financial conditions or a stronger dollar reassert themselves, especially if earnings breadth fails to improve beyond a narrow group of cyclicals and semis.