Wall Street: Don’t BTFD

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Wall Street is turning increasingly bearish on stocks, catching up with MB. BoA:

Q4 view: higher inflation, hawkish central banks, peak GDP & EPS= low/negativestock/creditreturns; sell rallies into Nov Fed taper; long H2 barbell of long inflation (e.g.commodities, energy, small cap, leisure, banks, Japan) & long quality (e.g. cash, utilities, staples, healthcare, apartments REITs); short consumer cyclicals & tech; note also Fedtaper, China contraction, FCI’stightening, US dollar surge, big inflows≠big stock pricegains, blackout for buybacks…allraises risk of Q4“event”(think 2018); ISM trendsconsistent with lower stocks/copper (Charts7&8).

On macro & Fed: yields up on weaker pandemic, reopening trend, inflation & 23 days before the Fed tapers; political pressure on Fed growing (ultimately v US$-ve) but for the moment US dollar acting as global safe haven; payroll <250k, DC fiscal meltdown, LQD>$125 probably required to stop taper.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.