Uddrag fra Bank of America:
The BofA Bull & Bear Indicator is down sharply from 8.4 to 7.4 (lowest level since Jul’25) on deteriorating global stock index breadth, outflows from HY bonds and EM debt, wider credit spreads (HY and AT1 bonds); as such the BofA Bull & Bear Indicator contrarian “sell signal” ends (since Dec 17th SPX -5%, peak-to-trough -7%).
Following end of prior BofA Bull & Bear sell signals (32 occasions since 2002) SPX & ACWI average returns just 1% in 3 months.
But before one can declare an “all-clear” on bottom fishing, Hartnett also notes that right now BofA trading rules show no bull capitulation, or macro panic (GDP/EPS downgrades) for contrarians to buy (similar to what Goldman’s Cullen Morgan said earlier today).
For those seeking to make sense of the bank’s technical indicators, and how to track the shift from Sell to Buy signals: the first trading rule to signal “buy” will be BofA Global Breadth Rule; here, the “buy signal” for global stocks is triggered when net 88% of global equity indices trading below 50-day and 200-day moving averages; it hit -39% on Monday, and is likely even lower after the close on Friday (the note was published before the Friday open); will likely need equity declines of roughly -2% in Asia Pac, -3% in EM, -14% in LatAm to hit “buy signal”.
Away from the sharp drawdown in stocks, Hartnett warns that a bear markets in Presidential credibility (more on that below) also means a bear markets in the US dollar (see Nixon, Carter, Bush II);
And if Trump’s credibility has been structurally hit by Iran, then his ability to jawbone Wall Street (as we saw very clearly on Thursday and Friday) and force Foreign Direct Investment inflows into the US, will fail; in response to which Hartnett says the US dollar bear market will return… as will the gold, international stock bull markets (and again, Goldman’s favorite trade noted earlier is going long gold).
Which brings us to The Biggest Picture of this week’s Flow Show (and which conforms with what we said recently): Hartnett says that consumer discretionary is now at Global Financial Crisis 2008 & COVID 2020 relative lows.
The Consumer is a favorite contrarian long (esp. lower-income stocks) to trade Trump’s upcoming post-war pivot to address affordability & slump in approval ratings…
… for the coming “AI = UBI = YCC” policy shift to protect workers (which will send both gold and bitcoin “to the moon”), and to hedge the second half of the 2020 decade electoral shift from “populist capitalism” to “populist socialism”.
Yet before the full Trump Put is triggered and gives the poor bulls some comfort, Hartnett points to the “Gravy Pain” highlighting the brutal onslaught of consensus “pain trades”during Q1:
- T-bills beating AI hyperscaler bonds
- US$ beating Bitcoin
- oil>gold
- yield curve flatteners>steepeners
- EM>US stocks
- energy>tech
- staples>banks
- semis>software
- micro>mega cap
… and much stock pain under-the-hood of S&P 500: 336 stocks (67% of index) down more than 10%, 143 stocks (28% of index) down more than 20% since liquidity and peak AI capex boom optimism peaked in late Oct.
Yet big corrections are always followed by big rallies: in the past 100 years, 15 big “corrections” (i.e. SPX down 10-20%) and as shown in the table below, the average 3-month rally from lows = 15%… but S&P500 still not in “correction” territory, won’t be until breaks 6.3k… which as of the Friday close is less than 100 points away.
Hartnett concludes this week’s flow show with three market cases: bear, bull case and “his” case:
Bear Case = EPS: in this worst case scenario, wider credit spreads and fresh declines in stocks continue until recession and rate hike probabilities stop rising, and stop threatening big cuts to 19% EPS growth global consensus; at the same time, the ballast for bulls of imminent AI productivity gains were damaged by poor 1.8% productivity growth in Q4
On the bright side, the coming end of the Iran war, US-China trade deal or a Hormuz Strait deal, and a cut in hyperscaler AI capex are all catalysts for risk asset lows… but the longer it takes, the greater probability that risk markets further rotate from boom trades in Q4, to stagflation trades in Q1, to recession trades in Q2… at which point long US Treasuries, short cyclical and liquidity themes still in overbought territory (silver, oil, Korea, LatAm, semis, energy, telecom).
Bull Case = Financial Conditions: any market rally will need easing of financial conditions as global policy coordination to lower oil = rate hikes get priced out, private credit systemic risk eases, yield curve steepens; for Hartnett, the best Q2 contrarian longs for exposure to easing FCI: software, private equity, consumer finance (based on deviation from 50-day and 200-day moving averages, the best metric for fear to buy & greed to sell).
Hartnett’s Case: the BofA strategist assumes a policy panic is now assured to avoid recession: as such, the best trades are long yield curve steepeners & consumer stocks; and while “no rush, no greed” but gold & international bulls to resume on coming US dollar bear market and RoW fiscal excess (poor Europe: so much to spend on defense and now on energy after giving up domestic energy sources, e.g. German nuclear and UK oil & gas from North Sea);
In conclusion Hartnett observes that the wide trading range for credit and stocks began late-Oct/early-Nov on peak liquidity, peak AI capex optimism, and Trump NY/NJ/VI election losses… and it is increasingly likely that this continues until Nov’26 midterms reveal electoral preference for populist capitalism or populist socialism in ’27 & ’28.
Saving the best for last, here are Hartnett two zeitgeist quotes for the week:
- Zeitgeist: “Pain trade either new highs led by private credit or new lows led by semis.”
- Zeitgeist II: “In a good market when the index falls below its 200-day moving average investors cover their shorts, but in a bad market that’s when they sell their longs.”
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