Here's why 2023's stock rally could fizzle out and end up burning bullish investors

Good morning, readers. I'm Phil Rosen, reporting from New York City for the first time since December. Frosty air notwithstanding, it's good to be back.

In case you missed it, this weekend I caught up with Kpler lead oil analyst Matt Smith to talk about Europe's new sanctions on Russian refined oil products.

I found the conversation to be a good primer on how the additional February 5 sanctions might impact Moscow — you can read it here.

Now let's turn to the stock market.

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1. The surging stock market suggests that investors are fairly optimistic these days. The S&P 500 is coming off its best January since 2019, and the Nasdaq had its strongest start to a year since 2001.

But those hoping for sustained gains in the months ahead are in for a rude awakening, according to Bank of America.

In a Friday note, strategists said the stock market is set to peak in the next two weeks because inflation could come roaring back.

While economic data suggests sticky inflation, high prices have eased in the past few months, and Fed Chair Jerome Powell acknowledged as much last week. However, BofA is warning that the economy's not in the clear just yet.

Powell mentioned "disinflation" 13 times in his presser last Wednesday, but BofA said the disinflationary environment could ultimately prove transitory, and the Fed could end up tightening monetary policy beyond what markets are anticipating.

Meanwhile, recent data showed the US added 517,000 jobs in January, massively beating estimates. A tight labor market could fuel wage increases, which ultimately contributes to the pace of inflation.

The bank's strategists maintained that a hard-landing scenario for the US economy is not out of the question, and markets could pay the price especially as investor sentiment remains upbeat.

"Such 'greed' preceded tops and crashes," BofA said, pointing to the extreme spread between corporate bond yields relative to Treasury bills.

Meanwhile, BlackRock's bond chief Rick Rieder voiced a similar view. He told Bloomberg last week that, rally aside, it may not be the right time to pile your money into stocks right now.

Equities are "just okay" at this point, according to Rieder. And investing legend Ray Dalio seems to agree, given the Fed's commitment to fighting inflation.

"Cash used to be trashy," he told CNBC. "Cash is pretty attractive now. It's attractive in relation to bonds. It's actually attractive in relation to stocks."

How has your investment strategy changed from six months ago to now? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.

In other news:

2. US stock futures fall early Monday, after Friday's strong US jobs report fueled speculation that interest rates will rise further. Meanwhile, the dollar is rising as tensions between the US and China intensify. Here are the latest market moves.

3. Earnings on deck: Activision Blizzard, Take Two, and Pinterest, all reporting.

4. This top fund manager with a strong track record shared his favorite cheap stock picks. In his view, international stocks will keep crushing their US peers in the months ahead. Here are the 6 trades he likes.

5. Russia is tripling sales of Chinese yuan from its $45 billion stockpile. The nation's energy revenue is declining, so Moscow will turn to its foreign currency reserves for a boost. In January, Russia's energy revenue saw a 54% drop.

6. Europe is imposing new sanctions on Russian refined oil products like diesel. But the move is unlikely to weigh on Russia's total energy production. Here's what a top oil analyst had to say about it.

7. Some analysts believe Apple stock could climb 30% over the next year. Even after Apple posted its first sales drop since 2019, both Wedbush and Jefferies said investors should still see the heavyweight's shares as a buy. Any weakness could just mean a "more appealing buying opportunity."

8. An insurance company breaks down the biggest regrets of recent homebuyers. The reasons ranged from locations, property types, and unforeseen expenses. But the company said there's a way to avoid each of these pitfalls.

9. Peter Mallouk is one of the US's largest money managers. He said people today have more access to financial knowledge than any other generation in history — but you have to know how to use it.

10. Crypto-linked stocks have been on a tear to start the year. Coinbase, MicroStrategy, and others have skyrocketed in recent weeks as risk appetite returns and investors bet that high inflation may be in the rearview mirror.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.