BofA’s Hartnett Says Equity Rout Not Over as Recession Looms


(Bloomberg) — Bank of America Corp. strategist Michael Hartnett — one of the most bearish voices on Wall Street last year — says investors should sell any rally in stocks as fund flows don’t yet reflect deep enough concern about a looming recession.

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“Sell the rip in stocks” given that there is “no equity capitulation,” Hartnett wrote in a note, adding that the “market’s too greedy for rate cuts and not fearful enough of recession.”

The strategist, who correctly warned of a stock exodus in 2022, recommended selling the S&P 500 above 4,100 points — about 3.5% above its last close. He flagged that equities were vulnerable to plumbing new lows in the absence so far of “extreme bearish positioning, extreme economic pessimism and policy panic.”

US stocks have been roiled in the past week as the failure of Silicon Valley Bank and Signature Bank sparked concerns about a potential financial crisis. The rout spread to Europe on Wednesday amid a collapse in investor confidence around Credit Suisse Group AG, although sentiment was fortified after a rescue package for First Republic Bank — another regional US lender to be caught in the turmoil.

Hartnett said the crisis and the tighter lending standards it could lead to had the potential to disproportionately hit smaller businesses, which are more reliant on regional banks. Other market strategists also warned of lingering anxiety ahead of the Federal Reserve’s policy meeting next week.

“Even if markets rebound from current levels in the short term, high uncertainty and lowered confidence levels are likely to mean an ongoing ‘Fat & Flat’ market given that valuations do not look particularly attractive,” Goldman Sachs Group Inc. strategists led by Peter Oppenheimer and Sharon Bell wrote in a note on Friday.

US futures were steady by 6:10 a.m. in New York, at the end of a tumultuous week in markets.

Other highlights from the note include:

  • Global equity funds have “tiny” outflows of $26 million in the week through March 15, the strategists say, citing EPFR Global data

  • About $112.7 billion enters cash funds — the biggest inflow since April 2020, while $2.3 billion flows out of bonds

  • Outflows resume from European equity funds, while by style, US value, small cap, growth and large cap all draw inflows

  • At $800 million, tech leads sectoral inflows, while materials and energy see the biggest redemptions

(Adds Friday’s US futures trading before bullet points. A previous version of this story corrected the spelling of strategist name in the headline.)

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