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BofA is selling rising US stocks on fears of ‘shocking’ unemployment in 2023


Strategists at BofA Global Research say it’s time to sell off the US stock market’s rebound in the face of a potential spike in unemployment next year.

“bearers (like us) fear the unemployment rate in 2023 will shock Main Street consumer sentiment just as much as inflation will in 2022,” strategists led by Michael Hartnett, director of global equity strategy at BofA Global, wrote in a weekly report. “We (are) selling risk rallies from here as the market (is) too positive running ahead of negative ‘spindle here’ payrolls.”

America created 263,000 strong new jobs in November, the historically strong hiring pace threatened to prolong the US period of high inflation, raising concerns that Federal Reserve policy will be even tighter in the longer term. The unemployment rate held at 3.7%, while average hourly earnings more than doubled Wall Street forecasts.

However, the BofA Bull & Bear Indicator rose from 1.4 to 2.0 in the week to November 30, which suggests that a “buy signal” for the risk asset is coming to an end, according to reports. analyst. “The index stands at its highest level since May 2022 due to higher bond inflows, credit engineering, equity breadth, and (and) hedge fund positioning.”

That sentiment has been echoed by other Wall Street banks. Marko Kolanovic of JP Morgan Chase & Co., once one of the most vocal people on Wall Street, calls for stock prices to fall early next year, and argued that the stock market rally was overdone after October, when the Federal Reserve’s interest rate hikes hurt the US economy. Morgan Stanley’s Michael Wilson, one of the most vocal who correctly predicted this year’s stock market sell-off, also suggested stocks will make new lows in the first quarter of 2023.

See: Why October’s yield curve inversion may not cause a crash for US stocks in 2023

Investors pulled $14.1 billion out of global hedge funds in the past week. According to BofA Global strategists, citing EPFR Global data on Friday, this is the largest weekly outflow in three months, with $6.1 billion withdrawn from exchange-traded funds and $8.1 billion from mutual funds. Meanwhile, US hedge funds saw a total of $16.2 billion in outflows in the week to Wednesday, the largest since April.

In 2022, BofA said equity funds had a total inflow of $207 billion, well below the previous year’s “exciting inflows”. By contrast, a $316 billion outflow from credit unions in 2022 has released all of 2021’s inflows. (See chart below)

SOURCE: BOFA’s GLOBAL INVESTMENT STRATEGY, EPFR

US stocks end mostly lower on Friday with S&P 500
SPX,
-0.12%

down 0.1%, while the Dow Jones Industrial Average
DIA,
+0.10%

slightly increased 0.1% after being in the red for most of the session. Nasdaq Composite
COMPUTER,
+1.87%

ended up 0.2% lower. For the week, the large-cap index gained 1.1%, while the Dow gained 0.2% and the Nasdaq gained 2.1%, according to Dow Jones Market Data.

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