Bank of America Warns “No Landing” Scenario Could Crash Stocks This Year

The U.S. economy Could be heading for a “no landing” According to Bank of America analysts, this could be a good thing for the stock market because of the current hot labor market.

Michael Hartnett, Bank of America’s chief economist, published a Friday analyst note. He predicted that there would be an increase in a “no landing” scenario where growth is not slowing down but inflation is above the trend in the first half. It would likely result in the Fed to increase interest rates much higher than previously forecast — and keep them elevated for longer. 

“No landing means no Fed pausing,” Hartnett wrote that he warned against tightening at the central bank “always breaks something.” He predicted that the S&P500 would fall nearly 7% in March.

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The Fed’s continued aggressive campaign to raise interest rate likely means that there will be more of this aggressive Fed campaign. “hard landing” outcome — in which the economy tumbles into a recession — will follow in the latter part of 2023, he said.

After a difficult year in the stock market, the worst since 2008, the gloomy outlook is expected. The three-year winning streak of all three indexes ended in 2022 with a tumble of all three. 

The Dow Jones Industrial Average ended last year at 8.8%. It was the lowest of all three. S&P 500 dropped 19.4%, while tech-heavy Nasdaq composite fell 33.1%. 

Stocks rallied initially in the early 2023 but have since lost some of their momentum due to rate-hike concerns. The S&P closed Friday with a gain of 6.67% over the beginning of the year but a decline in 0.83% for the week.

Wall Street was hit hard in 2022.  (John Taggart/Bloomberg via Getty Images/Getty Images

Federal Reserve policymakers voted Eight consecutively raised interest rates to a range between 4.5% and 4.75%. Last month, signaled that they would be doing so. “couple more” There are increases this year. 

There are a host of other hotter-than-expected data reports on the economy, such as the January jobs report blowout A disappointing inflation report, which pointed out the persistence of high consumer prices has raised concerns about a higher peak rate. 

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These reports show that the Fed is attempting to curb inflation. “very much unaccomplished,” Hartnett. 

Jerome Powell, the Chairman of Federal Reserve, speaks at a news conference that follows a Federal Open Market Committee meeting held in Washington, D.C., September 21, 2022. (Sarah Silbiger/Bloomberg via Getty Images/Getty Images

Hartnett’s pessimistic outlook is not unique. A BofA global manager survey released earlier this week showed that investors are skeptical about the ability of current stock rallies to last. About 66% of respondents said stocks are seeing a bear market rally — signaling they expect them to return to new lows.