(Bloomberg) – The U.S. stock market rally has already gone too far and investors face steep declines if economic growth slumps in the second half, according to strategists at Bank of America Corp.
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The “most painful trade” is still the “postponed apocalypse,” a team led by Michael Hartnett wrote in a note. The risk is that inflation will explode again over the next few months and that the US economy will face a deeper recession in the second half of 2023 after remaining resilient in the first six months of the year, they said. declared.
Global equity funds saw inflows of $44.7 billion over the past four weeks, the note said, citing data from EPFR Global. Stocks have rallied since the start of 2023 on signs of slowing inflation, optimism that China will reopen and hopes that slower economies will force global central banks to halt rate hikes. .
Data on Friday showed employers in the United States added more jobs in January than expected, while the jobless rate fell to its lowest level in 53 years, underscoring the resilience of the labor market despite the Federal Reserve’s most aggressive tightening campaign in a generation. US stock futures extended their slump.
BofA’s Raedler sees drop in European stocks on high risk of recession
Hartnett recommends investors start selling the S&P 500 when it breaks above 4,200 points, or 0.5% higher than its most recent close. He expects the benchmark to hit its first-quarter highs before Feb. 14. The strategist was rightly bearish throughout last year, although his call for a bottom in the first three months of 2023 has yet to materialize.
Several strategists share Hartnett’s view. Morgan Stanley’s Michael Wilson said investors flocking to the stock rally will be disappointed as it directly challenges the Federal Reserve. JPMorgan Chase & Co.’s Marko Kolanovic said the economy was heading for a slowdown as stocks rallied, bracing for a “shock”.
Among other flows in the week through Feb. 1, European stocks saw inflows for a third week at $21 million, while investors poured $7.7 billion into emerging market stocks. US equities generated $6.7 billion in positive flows, with financials and energy leading as investors fled health care and real estate. The bonds generated inflows of $7.8 billion.
–With help from Sagarika Jaisinghani and Michael Msika.
(Updates with jobs data in fourth paragraph, details in fifth)
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