Bank of America Strategists Expect Economic “Hard Landing” to Pummel Markets

Bank of America strategists are expecting an economic “hard landing” A resilient U.S. economy allowed markets to crash at the end of the previous year.

Economists fear that the economy will slow down. recession Stocks will suffer in the second half 2023 because the US economy is keeping interest rates higher longer.

Bloomberg reported, that BoA strategists, led by Michael Hartnett, in a Feb. 16 note, predicted a “no landing” The scenario for the first half is as follows: Strong economic growth and Federal Reserve maintaining its hawkish interest rate policy.

Hartnett stated that the growth period will likely be followed by a period of stability. “hard landing” The latter half of the calendar year.

Meanwhile. a BofA global fund manager survey from Feb. 14 showed most investors expect the current stock rally to fizzle out. About 66% of respondents stated that stocks are experiencing a bear market rally. They expect them to fall to new lows.

Recent economic indicators suggest that the Fed intends to bring down inflation. Inflation Is “very much unaccomplished,” Hartnett.

Analysts are increasingly concerned recent by hawkish commentary from central bank policymakers who favor returning to bigger interest-rate hikes in the future.

Fed Policymakers May Accelerate Increases in Interest-Rate Hikes

They believe the Fed should raise rates 50 basis points to reach its peak quickly. Interest rate To lock in disinflation, you need to pay 5.1 percent for this year.

Loretta Mester (president of Federal Bank of Cleveland) and James Bullard (president of Federal Reserve Bank of St. Louis) called for an acceleration of rate increases in this month’s first quarter.

The hawkish central bank officials have pointed to recent U.S. producer prices and inflation reports that point to the need for additional upward pressure by the Fed.

The consumer prices increased by 0.5 percent in January. This is the highest increase in three months. However, the annual inflation rate unexpectedly rose to 6.4 percent.

The inflation rate has fallen from the peak of 9.1 percent last year, which was the highest level in over 40 years.

Fed officials indicated that they are keeping an eye on the cost services, except for energy, and will be taking this into consideration before making a decision at their next policy meeting in March.

“Continued policy-rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low,” said Bullard.

He predicts that the economy will slow this year, and that long-term unemployment rates will return to normal levels.

BoA Strategist Predicts S&P500 to Drop in March

Hartnett however expects that the S&P 500 Index would fall to 3,800 by March. 8 after stocks failed to reach the ceiling of 4,200 point on Feb. 16.

Morgan Stanley’s Michael Wilson agreed to Hartnett’s forecast, predicting a sell-off of stocks after investors priced in a pause on Fed rate increases, according Bloomberg.

Wilson indicated that he expected the bear market to end in spring. Fed hikes during earnings recessions would cause further declines.

BoA noted that earlier this week, investors continued to trade U.S. stocks for European stocks. According to EPFR Global data, outflows totaled $2.2 billion.

Europe received $1.5 billion in inflows, while emerging markets stocks received $100 million.

Harnett wrote that U.S bond yields saw inflows of $5.5 billion, while BofA’s private clients poured their third-largest amount on record into bonds and Treasurys saw their best start to a year since 2004.