Short U.S. stocks as well as short-term bonds until Halloween, a Bank of America strategist advises.
Michael Hartnett, chief investment strategist at Bank of America Securities, said he’s a tactical bear in recommending “short twos and spoos,” the former meaning the 2-year Treasury TMUBMUSD02Y, 4.171%, the latter a reference to the S&P 500 futures contract ES00, +0.27%.
He’s expecting a policy panic in November — specifically the G-20 meeting in Bali, scheduled for Nov. 15 and 16.
Recent interventions by the Bank of Japan, to buy the yen, and the Bank of England, to buy gilts, he said were neither credible nor coordinated, so impotent. A Fed and U.S. Treasury panic would require a U.S. credit event, he added.
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“Markets stop panicking when central banks start panicking,” Hartnett said. Both the S&P 500 SPX, +0.75% and U.S. government bonds TMUBMUSD10Y, 3.734% have tumbled this year.
“Wall Street disorder in 2022 reflects painful regime change as bullish deflationary era of peace, globalization, fiscal discipline, QE, zero rates, low taxes, inequality gives way to inflationary era of war, nationalism, fiscal panic, QT, high rates, high taxes, inclusion,” he said.
Wars, he notes, are inflationary, pointing to the $1.4 trillion of fiscal stimulus from the U.K. and European Union to ease the energy shock and build the military.
He said U.K. equity outflows are on pace for the worst year ever. There also was the biggest outflow from investment grade, high yield and emerging market debts in 13 weeks, and the largest outflow from Treasury-inflation protected securities since May.