Bank of America’s chief strategist, Michael Hartnett, has been busy since Friday, when he wrote in a note to clients that investors piled US$40 billion into equities over the past two weeks, which has helped the S&P500 to its best monthly performance, so far, since July 2022.
He noted, though that signs of caution have emerged and that Bank of America’s proprietary “Bull & Bear Indicator” has now exited its “Buy” zone, back to "Neutral:
- this suggests a potential shift in investor sentiment and is a sign that prudence is best for now.
And, he now thinks that the "3C"s of Credit, Crude, Consumer are signalling slower growth:
- Credit is tightening, spreads rising, defaults rising, delinquencies rising;
- oil has entered an unexpected bear market;
- while the US Consumer has been so far bulletproof (job security& wealth security) unemployment is now rising;
Hartnett sees no 2023 recession but 2024 will be more challenging:
- we await the classic combo of bearish Positioning, recessionary Profits & Policy easing ("3P"s)
- believe the risk of a "hard landing" for the economy is higher-than-expected
- a soft landing which takes bond yields from 5% to 4% is bullish risk, but a deeper recessionary decline in yields from 4% to 3% is bearish risk; driven by weak growth & EPS we expect risk asset downside in early-24, lower yields-lower stocks correlation
And then gets more bullish for the back half of next year.
