Stay bearish risk assets in coming months – Bank of America

By Senad Karaahmetovic

Bank of America strategists urged the firm’s clients to stay bearish on risk assets in the first half of 2023.

Investors seeking to play a major rebound in beaten-down tech stocks should wait until the second half of the year, the strategists said. They see a change in the narrative, from inflation and rate “shocks” to recession and credit “shocks”.

“Long bonds H1… hard landing, long stocks and bonds H2… peak Fed; maintain SPX nibble at 3.6k, bite at 3.3k, gorge at 3.0k entry points; trades: long UST 30-yr, gold, China, copper, industrials, small-cap; short US$, tech, PE; barbell credit,” the strategists wrote in a client note.

They also highlighted the key 4-day flows to November 22, such as the largest inflow to bonds in 15 weeks, 1st inflow to gold since June (which ends the longest outflow episode on record), as well as 41 weeks of outflows from European equities, which extends longest outflow episode on record.

As far as BofA’s private clients are concerned, they note the continuation of rotation of private client funds from equities to bonds with 39 consecutive weeks of bond inflows and 9 consecutive weeks of equity outflows.

The strategists also highlighted the fact that the BofA Bull & Bear Indicator is up to 0.6, which is the 5-month high and an indicator of improving risk sentiment.