Bank of America Corp strategists say the US stock rally is already well under way and investors will face brutal declines if economic growth collapses in the second half of the year.
The team, led by Michael Hartnett, noted in their memo that “the most painful operations” always come with “postponed apocalypse”.
The team said the risk is that inflation will flare up again in the next few months and the US economy will remain resilient in the first six months of the year, then face a deeper recession in the second half of 2023.
According to the note, which included EPFR Global data, an inflow of 44.7 billion dollars was made to global equity funds in the last four weeks. Stocks have soared since early 2023 on signs that inflation has cooled, optimism about a reopening China, and hopes that slowing economics will force global central banks to halt rate hikes.
On Friday, data showed US bosses added more jobs than expected in January, while the unemployment rate fell to a 53-year low, highlighting the resilience of the labor market despite the Fed’s most aggressive tightening campaign in recent years. US futures stocks also continued their decline.
Hartnett advises investors to start selling the S&P 500 when it rises above 4,200 points, which is 0.5 percent higher than its most recent close.
The strategist expects the indicator to reach first-quarter highs before February 14. While Hartnett’s prediction of hitting the bottom in the first quarter of 2023 hasn’t come true now, it has rightly been on a downward trend over the past year.
Hartnett is not alone in his shared view. Morgan Stanley’s Michael Wilson warned that investors who flocked to the stock rally would be disappointed by their direct challenge to the Fed.
Marko Kolanovic of JPMorgan Chase & Co. stated that the economy is heading towards a crash right when stocks are rising and preparing for a crash.
Amid other flows in the week to February 1, European equities saw inflows of $21 million in the third week, while investors poured $7.7 billion into emerging market equities. With $6.7 billion in positive flows in U.S. equities, led by finance and power, investors fled healthcare and real estate. On the bond side, an inflow of $7.8 billion was observed.