BAML: Stocks are going to 'melt up' 10%
Pascal Lauener/Reuters
Michael Hartnett, BAML's chief investment strategist, thinks there will be a rapid rise in the stock market in the coming months.
"Our tactical view: after a January/February wobble, we believe stocks & commodities will have one last 10% melt-up in [the first half of the year]," wrote Hartnett. "Call it the Icarus trade. The current melt up, which started back in Feb 2016, will be followed by a meltdown later in 2017."
Hartnett wrote that the indicators - bearish investor sentiment, bearish profits, and weak policy - that were hallmarks of the recent stock market rally have started to fade. He also predicted that the top will be put in under three conditions:
- Investor euphoria as measured by positioning: "bullish Positioning (BB indicator = 8, cash = 4%, unambiguous long positions in stocks, Japan & banks)"
- Analysts' profit expectations get ahead of reality: "excessively bullish Profit expectations (global PMI's >55, US wage growth >3%)"
- The Fed starts hiking more: "and Policy hawkishness (Fed jacks up short end of yield curve, ECB tapers). "
Hartnett said that none of these three indicators are around yet, as profit expectations remain low despite improving underlying trends, cash levels are still at 4.8%, and financial conditions are still incredibly loose even after the Fed's most recent rate hike.
This also doesn't mean there can't be some troubles along the way, wrote the BAML strategist. From the note:
"Sure, you can get a wobble in the coming weeks. Investor are partial to the 'buy the election, sell the inauguration' argument. Fed anxiety could pick up between the two winter FOMC meetings: February 1 & March 15 especially given December surge in US wage growth. And Trump/Mexico/China headlines/tweets have the ability to rattle sentiment as the new President seeks to immediately boost his ratings via populist trade policies & legislation from (...Occupy Wall Street to Occupy Detroit or Occupy Silicon Valley).
Despite the small slips, Hartnett believes that the future of the market is still bright for the first half of the year.
- Indian markets conduct disaster recovery test amid improved sentiment and positive FIIs
- Spiti Valley guide 2024: Stunning locations & interesting things to do
- Zydus Q4 net profit surges 4-fold to ₹1,182 cr; revenue at ₹5,534 cr
- Sebi mulls facilitating MFs to invest in overseas funds with exposure to Indian securities
- India's forex reserves jump $2.56 bn to $644.15 bn
- Nothing Phone (2a) blue edition launched
- JNK India IPO allotment date
- JioCinema New Plans
- Realme Narzo 70 Launched
- Apple Let Loose event
- Elon Musk Apology
- RIL cash flows
- Charlie Munger
- Feedbank IPO allotment
- Tata IPO allotment
- Most generous retirement plans
- Broadcom lays off
- Cibil Score vs Cibil Report
- Birla and Bajaj in top Richest
- Nestle Sept 2023 report
- India Equity Market