BofA’s Hartnett says the stock market crisis isn’t over as a recession looms

(Bloomberg) — Bank of America Corp. strategist Michael Hartnett — one of the most pessimistic voices on Wall Street over the past year — says investors should sell any rally in equities as capital flows are not yet deep enough to reflect concerns about an impending recession .

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“Sell the stock price” as there is “no equity capitulation,” Hartnett wrote in a note, adding that the “market is too greedy for rate cuts and not fearful enough of a recession.”

The strategist, who rightly warned of a stock exodus in 2022, recommended selling the S&P 500 above 4,100 points — about 3.5% above its last close. He pointed out that stocks are vulnerable to trying new lows in the absence of “extreme bearish positioning, extreme economic pessimism and political panic.”

US stocks were roiled last week as the collapse of Silicon Valley Bank and Signature Bank sparked concerns about a possible financial crisis. The flight spread to Europe on Wednesday amid a collapse in investor confidence in Credit Suisse Group AG, despite buoyed sentiment following a rescue package for First Republic Bank — another US regional lender caught in the turmoil.

Hartnett said the crisis and the tighter lending standards it could lead to have the potential to disproportionately hit smaller companies that rely more on regional banks. Other market strategists also warned of continued concerns ahead of next week’s Federal Reserve monetary policy meeting.

“Even if markets recover from current levels in the near term, high uncertainty and lower confidence levels should mean a continued ‘Fat & Flat’ market as valuations don’t look particularly attractive,” said Peter-led strategists at Goldman Sachs Group Inc Oppenheimer and Sharon Bell wrote in a note on Friday.

At the end of a tumultuous week in markets, US futures in New York were steady at 6:10 am.

Other highlights from the note include:

  • Global equity funds have “tiny” outflows of $26 million in the week ending March 15, the strategists say, citing EPFR Global data

  • About $112.7 billion will flow into cash – the largest inflow since April 2020, while $2.3 billion will flow out of bonds

  • Outflows from European equity funds continue, while by style US value, small cap, growth and large cap are all drawing inflows

  • Technology leads the sectoral inflows at $800 million, while materials and energy see the largest withdrawals

(Adds Friday’s US futures trading before bullet points. An earlier version of this story corrected the spelling of the strategist’s name in the headline.)

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