Bank of America Corp. Chief Investment Strategist Michael Hartnet said a recessionary shock is brewing for stock markets after the S&P 500 posted its worst half in more than 50 years.
Hartnett wrote in a note about expectations of aggressive Fed rate hikes peaking, inflation expectations not, and BofA is gauge of whether sentiment is bullish or bearish. remains at “lower maximum” for the third consecutive week.
Both bonds and stocks were hit by capital outflows this week as investors fear the global economy could contract amid runaway inflation and tightening central banks.
In the week to June 29, about $5.8 billion flowed out of global equity funds, although US stocks saw small inflows of about $500 million, BofA said, citing data from EPFR Global. The bonds had writedowns of $17 billion, the data shows.
Inflation remains stagnant even as central banks initiate aggressive interest rate hikes, while markets have taken a hit this year as investors sold risky assets on fears of an impending recession. The S&P 500 index alone lost more than $8 trillion, marking its worst first half in more than half a century. Taken together, stocks and bonds around the world posted the biggest drop on record going back to 1990.
Strategists at Goldman Sachs Group Inc. said on Friday that the risk of a further sell-off in equity markets remains high as investors have priced in only a mild recession. Other seemingly bullish strategists expect stocks to at least partially recover in the second half, according to survey data provided to The Tampa Herald. But some, like Michael Wilson at Morgan Stanley, have warned that further declines are coming until the market bottoms.
The upcoming earnings season will also be crucial for investors to assess weaker consumer confidence in corporate profits and the impact of higher prices. Published by The Tampa Herald, news and information agency.