BoA strategists 'bearish', expect 'growth shock' in back half 2022
By Alexander Bueso
Date: Friday 04 Feb 2022
(Sharecast News) - Equity strategists at Bank of America declared themselves to be "bearish" on equities, arguing that the 2021 inflation shock would reverberate in 2022 via an interest rate shock in the first half of the year followed by a "growth shock" in the back half of the same year.
The result would negative returns on credit and stocks, the strategy team led by Michael Hartnett said in a research report sent to clients.
Worth noting, in the case of the S&P 500, they believed the level that would lead the Federal Reserve to become worried, or what traders termed the "Fed put", lay at around 3,800-4,000 points.
They also noted how the US public debt pile was now north of $30trn and worth more than 100% of GDP, versus $3trn in 1990 and $10trn in 2008.
Historically, the various solutions to "excess" debt had been "...war, currency debasement, repudiation, inflation," they pointed out.
Furthermore, they noted how credit markets tended to lead equities and how "sinister" price action in corporate bonds had coincided with big outflows and trading volumes.
That had not been the case for stocks year-to-date, they conceded.
In the past, weeks of fund outflows from high yield debt coinciding with big inflows into stocks had signaled "big tops" in equities, they said.
Over the preceding week, investment grade and high yield bonds had seen the ninth largest outflows, of roughly $10.3bn, since 2003, while $4.8bn of inflows into European equities had been the largest since May 2017.
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