The stock market is mired in a selling quagmire. How can investment portfolios outperform the market? Bank of America gives the keywords: essential consumption and high dividend stocks.

During the Asian trading session on Monday, the US dollar index briefly fell below the 98 level, while the US dollar against the Japanese yen continued to decline significantly, dropping more than 1% intraday. At the same time, the spot price of gold rose by over 2% to over $3,400 per ounce, marking multiple historical highs so far this year. This market trend towards risk aversion reflects a major crack in the so-called "American exceptionalism" logic long believed in by global investors, as confidence in holding US dollar assets has deteriorated rapidly due to the Trump administration's desire to dismiss Federal Reserve Chairman Powell and intervene in the Fed's independence. Investors have been shifting towards the traditional safe-haven assets of the yen and gold, and continue to sell off risky assets like stocks even in the face of tactical rebounds. With the logic of "American exceptionalism" gradually collapsing, US stocks, bonds, and the dollar exchange rate have experienced multiple rounds of selling since April, leading to a "stock-bond-dollar kill" trend. Especially in recent days, the three major US stock indexes have continued to face selling pressure, with the S&P 500 index falling by over 10% since the beginning of the year and more than 5% just in April. The unprecedented "tariff stick" wielded by the Trump administration globally continues to hit all US dollar assets, reflecting a decreasing confidence in holding US dollar assets among investors. Regardless of the outcome, Trump's chaotic tariff measures are inevitably weakening investor confidence in the US economy and US dollar assets, potentially keeping the market in a tense state over the next three months. In the context of the ongoing selling trend in US stocks, bonds, and the dollar, how should global investors position themselves to gain excess returns over the benchmark S&P 500 index? Top Wall Street financial giant Bank of America recently suggested focusing on high-quality consumer staples and defensive stocks with strong fundamentals to mitigate the uncertainties brought by the Trump administration's policies and tariff risks. The market has shown a preference for investing in strong fundamental consumer staples and high-dividend stocks since April. The iShares Global Consumer Staples ETF and global high-dividend sectors, especially in the Hong Kong and A-share markets, have outperformed the broader markets. The ETF has risen by over 3% since April and over 10% year-to-date, outperforming the S&P 500 index and MSCI global stock market index. As the global stock market saw a strong start in 2025, risks assets like stocks, cryptocurrencies, and high-yield bonds initially suffered due to disruptions caused by the Trump administration's higher-than-expected tariffs, then rebounded after the delayed implementation of tariffs. The S&P 500 index has remained volatile in the range of 5,100-5,500 since then. Bank of America's "US Cyclical Indicator" showed a shift in the US economic fundamentals from an "upturn" to a "downturn" in the first month. Whether this is a temporary fluctuation or a phased transition remains uncertain. Since February 2022, the indicator has been shifting between these two phases, causing macro-level economic signals to fluctuate due to the COVID-19 pandemic and tariff pricing volatility. Bank of America's compiled statistics show improvement in only two indicators - inflation and capacity utilization - in April, mainly due to pre-tariff stockpiling and demand shifts. The remaining six indicators, including overall EPS revisions, GDP revisions, US Treasury yields, ISM manufacturing, leading economic indicators, and credit spreads, have deteriorated significantly. In the current credit cycle, sovereign risk outweighs corporate risk. Bank of America's credit strategy team has proposed a new theme: credit risk arising from the fluctuation in 10-year US Treasury yields. Large foreign buyers of US Treasuries in Japan may divest, and uncertainties in US external tariffs and high government debt levels are contributing factors. In this credit cycle and the indicated "downturn," Bank of America's quantitative indicators show that companies with higher "dividend safety" are healthier than in past economic downturns, with the overall performance of the US stock "value index" outperforming the "growth index." As the US and global economies enter a downward trajectory due to the new global trade war, Bank of America's strategists recommend focusing on sales instead of earnings during economic downturns, emphasizing consumer needs over desires. They suggest actively investing in discretionary consumption sectors and high-dividend investment strategies, provided that the fundamentals remain on a long-term stable path. Bank of America's strategy team currently favors stocks that are "cheap in valuation and have positive sales growth," based on an analysis that showed companies with sales-based valuations and revision indicators have performed well in previous downturns.In times of economic downturn, companies often outperform profit-based indicators (i.e. EPS). Why is this the case? The Bank of America strategy team explains that the main reason is the significant decline in demand for discretionary consumer goods during economic downturns, leading to reduced sales volume and limited revenue growth. Generally, it is easier to maintain strong profit margins by cutting costs, but in order to achieve sales growth exceeding expectations during downturns, companies need to have the ability to exercise strong pricing power. Analysis compiled by the Bank of America strategy team shows that this ability is most evident in the "essential consumer goods sector".For example, during the current downturn, the Russell 1000 value index, which includes actual profits from essential commodities and services such as utilities, telecommunications, insurance, pharmaceuticals, and leasing, exceeds the Russell 1000 growth stock benchmark index. However, not all value-type essential consumer stocks are worth allocating during a downturn period, according to Bank of America. Media and retail giants with strong long-term fundamentals and robust sales growth have much stronger investment appeal in terms of market size, content scope, and conversion costs. Similarly, Goldman Sachs and Morgan Stanley's strategy teams recently released research reports emphasizing the need for investors to allocate to essential consumer stocks and urging investors to shift towards defensive strategies, particularly favoring essential consumer goods in the Asian markets. Strategists from top Wall Street investment firm Fidelity International also point out their recent decision to buy Chinese essential consumer stocks, betting that these companies will benefit from government stimulus measures. The recent extreme favor from Wall Street investment firms on the global essential consumer goods industry represents a sharp reversal of fortune for the sector. In recent years, as the AI investment frenzy has driven tech stock prices soaring, this industry has struggled. This trend further highlights that as trade tensions threaten global economic slowdown, investors are starting to flee growth stocks. Signs that Asian governments are preparing fiscal stimulus measures to support spending have also boosted this group. During times of macroeconomic weakness and stock market sell-offs, one should not overlook the "high dividend sector." The Bank of America strategy team states that with the ongoing uncertainty of the Trump administration's policies, global financial markets, including equities, bonds, and currencies, may continue to experience elevated volatility. Tariff policies are also likely to bring inflation risks. "High-quality fundamentals" can be seen as the best hedge against market volatility, and anti-inflation related returns may generate excess returns. Therefore, the "traditional market strategy of high-quality fundamentals + high dividend investment strategy" is worth the attention of global investors. Bank of America, in its research report, specifically selects individual stocks within the S&P 500 (excluding financials) index, as well as within the entire US stock financial sector, whose dividend yields are higher than the market and have excellent fundamental qualities. For the US stock market's financial sector, Bank of America maintains its optimistic view of being overweight.