Buy the last hike in treasuries and IG bonds, stocks could go either way - BofA

December 9, 2022 10:28 AM EST

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In today's weekly flow show report, BofA Securities strategist Michael Hartnett discussed the last fed rate hike, which could happen as early as February 2023 but most likely in March 2023, and how investors should position.

The strategist said under a crashing oil scenario, the Fed could raise 50bps on Dec. 14th, 25bps on Feb. 1, and maintain rates on March 2nd. Meanwhile, under a cooling housing scenario, the Fed would go 50/25/25 bps at those three meetings. A solid credit market would mean 50/50/25 bps, and a hot labor market would mean 50/50/50 bps.

On what investors should do, Hartnett points to history, which shows "buy the last hike" in stocks was the right strategy using recent disinflationary stock market history. However, the strategist notes that in the inflationary ‘70s/’80 period, "sell the last hike" in stocks was the correct strategy.

Buying treasuries on the last hike worked 9 out of 10 times over the last 50 years, the strategist noted. Meanwhile, investment-grade bond returns were also positive 9 out of 10 times over the last 50 years following the last rate hike.

On dollar/gold, buy US dollar, sell gold was the correct strategy after the last hike in inflationary ‘70s/’80s, but a wash in the past 30 years of disinflation, he notes.

Looking at weekly flows, the strategist highlighted inflow to gold funds of $65 million, outflow from bonds $0.1 billion, cash $5.7 billion, and stocks of $5.7 billion.

By Staff

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