(Bloomberg) – The stock market and the U.S. economy will suffer more pain before the Federal Reserve pivots away from its aggressive policy tightening, according to Bank of America Corp strategists. .
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Strategists led by Michael Harnett wrote in a note that Thursday’s rally in US stocks looked like a “head hug” amid oversold conditions, high cash levels and a lack of credit events. use. The move is the latest in a tumultuous year marked by recession fears with the Fed’s fickle determination to control prices.
It was a “good counter-rally,” but the low won’t be reached until 2023, the strategists wrote. They added that more economic and market pain will be needed before the Fed backs down.
Separately, Barclays Plc strategist Emmanuel Cau said on Friday that defensive positioning and “strong bearish sentiment” could help the stock bounce off oversold levels, but “growth fundamentals” and policy continues to oppose a sustained rally.”
According to BofA strategists, the best counter trades when stocks hit their lows next year would be to short the US dollar and use a long-term portfolio with 60% holdings and 40% bonds. The bank’s custom bullish and bearish indicator remains at “maximum downside”, which is generally considered a contrarian buy signal.
Global equity funds saw about $300 million inflows in the week to October 12, the bank said in the note, citing EPFR Global data compiled ahead of its inflation report. United States on Thursday. Cash has flowed into $100 million, while $9.8 billion has been withdrawn from bonds and gold has seen $300 million in buybacks.
In the U.S., hedge funds had $5.2 billion inflows in the most recent week, while funds in Europe had inflows for the 35th consecutive week, BofA said.
In trading style, investors poured cash into large, value, and growth US stocks. Among sectors, technology had the largest inflows with $1 billion while consumer stocks had the largest buybacks with $800 million.
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