- Bank of America stated Friday that the Thursday rally in US stocks was not a “bear hug”, but rather a sign of an upcoming sustainable upswing in equities.
- According to the firm’s statement, the rally was initiated in a market that is oversold and where cash is scarce.
- According to BofA’s chief US strategist Michael Hartnett, the “Big Low” is on its way but there hasn’t been enough market pain.
According to Bank of America research, Thursday’s dramatic rally in US stocks was a “bear hug” but doesn’t signal the start of a sustainable rise in equities.
In a new client note, Michael Hartnett, the firm’s chief investment strategist, said that investors are “close enough to the point where all their wants is to be hugged”.
The so-called bear hug that transpired — which saw the Dow Losses can be erased and the swing higher by more that 1,500 points within a matter of hours on Thursday morning — was the result of extreme oversold conditions, Harnett noted.
Why would investors need to be hugged? Harnett points out that the traditional 60/40 portfolio’s -34% annualized return is the worst it has been in 100 years.
Bank of America
Looking forward, Hartnett still sees a “Big Low” coming in markets — but he’s still waiting for signs of panic from the Fed. He says that the economy is too strong to allow the central bank rate cuts, as it usually does when the Big Low hits.
Actually, this year the Fed’s biggest problem has been its historically high rate Hiking it’s enacted. It’s a reasonable decision considering the September inflation reading. Bad for almost everyoneThe central bank does not appear to be close to a pivot. The Probability of another increase in December for this sizeThe inflation report saw almost a double-digit increase.
Hartnett said Thursday’s rally was “decent, but not the ultimate lows,”
He focuses on the manufacturing and labor market data, which aren’t week enough for Fed to “fold.”
Hartnett also wrote that the inflation shock is not over.
