“We believe the air in risk assets will be getting thinner as well as thinner, however the Big Top in cost will be still ahead of us,” Michael Hartnett, chief investment strategist at BofAML, said in a report for clients. “We will downgrade risk aggressively once we see excess positioning, profits as well as policy.”
Indicators of which market positioning has gotten out of hand as well as signaling a fall could include active funds attracting more money than passive (there’s a $476 billion gap This particular year in favor of passive), as well as portfolio allocation for equities exceeding 63 percent, a level currently at 61 percent.
Hartnett pointed out of which the current bull will be the longest in history if the item continues to Aug. 22, 2018, while the outperformance of stocks versus bonds, at seven years running, could be the longest streak since 1929.
The forecast will be predicated on three core beliefs: The first will be the aforementioned capitulation; the second an expectation of “peak positioning, profits as well as policy” of which “will engender peak asset cost returns” as well as a low in volatility; as well as, finally, an expectation of which higher inflation as well as corporate debt along with tighter monetary policy will roil the corporate bond market, a critical prong of the risk asset rally.
“The game changer will be wage inflation, which on our forecasts will be likely to become more visible,” said Hartnett, who projects of which salaries could rise 3.5 percent as well as push the consumer cost index up 2.5 percent as well as convince the Fed of which the item’s close to meeting its 2 percent inflation goal.
However, of which cuts both ways: Should wage inflation again fail to materialize, Hartnett said “the era of excess liquidity” continues, bond yields could fall as well as the Nasdaq tech barometer could go “exponential.” of which could signal a bubble of which might not end until 2019, when a bear market could be triggered by “hostile Fed hiking, Occupy Silicon Valley as well as War on Inequality politics.”
“Big Top” trades favor technology, homebuilders, Japanese banks as well as the dollar against the Swiss franc.
BofAML’s forecast comes as Goldman Sachs released a cost target of 2,850 for the S&P 500, after a comparatively bearish 2016 call for 2,400 of which was passed six months ago.
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