Global Markets Enter "New Order" Phase: Why U.S. Unemployment Rate Becomes Critical Investment Signal

BofA’s Chief Investment Strategist Michael Hartnett outlines a transformative scenario for global markets: fiscal expansion led by the Trump administration is establishing what he terms a “New World Order = New World Bull Market” environment. Under this framework, various asset classes are poised to benefit significantly—but the sustainability of this optimistic outlook hinges critically on whether the U.S. unemployment rate can remain controlled. If joblessness rises, the entire investment thesis could unravel, making labor market data one of the most important indicators investors should monitor in the coming months.

01 The Architecture of a Global Rally

Hartnett argues that we’re entering a pivotal phase where global fiscal expansion—rather than monetary tightening—drives market dynamics. This represents a meaningful shift in capital allocation patterns. Historical data reveals a significant imbalance: over the 2020s, U.S. equity funds attracted $1.6 trillion in inflows compared to only $0.4 trillion for global funds. This concentration is now reversing as investors rebalance toward international equities.

China emerges as Hartnett’s most favored market within this framework. The end of deflation in China could serve as a catalyst triggering bull markets in both Japan and Europe. Geopolitical stability also supports this thesis—Tehran markets have surged 65% since August, while Saudi Arabia and Dubai remain stable, suggesting no major regional disruption. This stability is significant given that Iran supplies 5% of global oil and holds 12% of global reserves.

Under this new order, traditional “Trump prosperity” trades—including mid-cap and small-cap stocks, homebuilders, retailers, and transportation—are expected to benefit from rate cuts, tax reductions, and tariff reductions. The Federal Reserve and Trump administration are projected to inject approximately $600 billion in quantitative easing liquidity throughout 2026.

02 Gold and Silver: Bull Markets Remain Intact Despite Short-Term Extremes

The commodity surge is far from finished, despite current overbought conditions. Silver prices sit 104% above their 200-day moving average—the most elevated level since 1980—suggesting near-term consolidation. However, Hartnett maintains that longer-term fundamentals support continued precious metals strength.

Over the past four years, gold has outperformed both Treasury bonds and U.S. equities, driven by geopolitical tensions, populist movements, de-globalization trends, fiscal excess, and currency devaluation concerns. Notably, gold was the best-performing asset class throughout the 2020s.

The allocation picture reveals significant upside potential. Bank of America’s high-net-worth clients currently maintain just 0.6% of portfolios in gold—substantially below historical norms. Looking at precedent, the average gain during four major gold bull markets over the past century reached approximately 300%. At that trajectory, gold could potentially exceed $6,000, representing a historic peak.

03 Economic Recovery Assets—But Watch the U.S. Unemployment Rate Closely

Beyond precious metals, other “economic recovery” trades are gaining traction. However, Hartnett identifies a crucial constraint: the success of this entire rally depends fundamentally on maintaining low U.S. unemployment.

This dependency reflects a hard economic reality. Rising joblessness would undermine several critical pillars:

First, corporate cost-cutting and automation accelerate job losses. Youth unemployment has already climbed from 4.5% to 8% recently—a concerning signal that widespread labor weakness may be emerging. Canada provides a cautionary case: despite significant immigration declines, Canadian unemployment has still risen from 4.8% to 6.8% over three years. If this pattern holds globally, the U.S. unemployment rate could soon follow an upward trajectory.

Second, the benefits of Trump’s policy agenda depend on consumer spending. If tax cuts are saved rather than spent, cyclical sectors dependent on increased consumption would suffer. More fundamentally, unless Trump administration policies successfully lower the cost of living through interventions in energy, insurance, healthcare, and electricity prices, the administration’s approval ratings will remain constrained. Currently, Trump’s overall approval sits at 42%, economic policy approval at 41%, and inflation policy approval at just 36%.

History provides a relevant precedent: President Nixon’s August 1971 wage and price freeze improved the cost-of-living perception, lifting his approval from 49% to 62% by his 1972 reelection. Trump faces a similar challenge. If administration policies fail to demonstrably reduce living costs by end-of-Q1, midterm election risks will escalate, making investor confidence in “Trump prosperity” trades increasingly fragile.

04 The U.S. Unemployment Rate Threshold: A $5 Trigger for Market Reversals

Hartnett explicitly identifies when this bull market thesis breaks: if the U.S. unemployment rate rises to 5%, investors should substantially reduce exposure to cyclical trades. At that threshold, multiple risk scenarios become probable simultaneously:

• Corporate layoffs reduce consumer spending capacity
• Tax cut benefits fail to materialize due to precautionary savings behavior
• Central bank emergency interventions become necessary, destabilizing asset prices
• Political pressure on the Trump administration intensifies

The current labor market trajectory is worth monitoring closely. With youth unemployment already at 8% and broader labor market softening visible in immigration data, the path to a 5% headline rate is shorter than many realize.

05 The Immediate Threat: East Asian Currency Appreciation

Beyond the unemployment rate, Hartnett warns of another imminent risk: rapid appreciation of East Asian currencies. The yen currently trades near 160 against the dollar—approaching its weakest historical level—with the yen-renminbi exchange rate hitting its lowest point since 1992.

If the yen, South Korean won, or new Taiwan dollar suddenly strengthen—triggered by Bank of Japan rate hikes, U.S. quantitative easing, geopolitical tensions, or unwinding carry trades—it would reverse the $1.2 trillion capital flow recycling system currently supporting global markets. This $1.2 trillion annually flows from Asia’s current account surpluses into U.S., European, and emerging market assets. A reversal would constitute a genuine liquidity squeeze.

The warning signal Hartnett identifies combines two indicators: yen strength plus rising MOVE index (bond volatility). When this combination appears, exit signals become critical.

06 The Verdict: Constrain Enthusiasm Until the U.S. Unemployment Rate Stabilizes

Market consensus in Q1 2026 remains extraordinarily bullish on “Trump prosperity” trades. Yet Hartnett’s framework emphasizes a disciplined approach: maintain positions in international equities, gold, and economic-recovery assets, but reduce exposure if the U.S. unemployment rate breaks above 5% or if leading indicators suggest cost-of-living pressures aren’t declining meaningfully.

For investors, the implication is clear: stop waiting for perfect signals. Instead, establish positions in line with Hartnett’s framework while the thesis remains intact, but build exit strategies around two non-negotiable triggers—the unemployment rate and East Asian currency moves. Once either threshold breaks, the “New World Order” bull market may face its most serious test.