Wall St remains 'too big to fail'; Stock lows to be tested one last time coming months - BofA's Hartnett

March 17, 2023 9:00 AM EDT
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Bank of America investment strategist Michael Hartnett weighed in on the ongoing banking crisis in the United States, which prompted banks to borrow $165 billion from the Federal Reserve, including a record $153B from the discount window.

He reminds investors that the world has experienced 14 big recessions in the last 150 years. These were triggered mostly by wars, emergency health situations, and banking crises.

“Emergency borrowing…tighter bank lending standards…small business credit crunch…higher unemployment…ain’t nothing new under the sun,” Hartnett wrote in a client note.

Hartnett adds that Wall Street may be too big to fail given that it is the “6x size of Main Street.”

“In US banking crisis past 10 days crypto/silver were “long panic” plays, long 2-year Treasuries-short banks the “long contagion” play, FAANG stocks a “long deflation” play; when trades unwind policy panic working & crisis over,” he further noted.

Discussing the trades, Hartnett urged investors to sell the dollar, stocks, and credit. He sees the current year as a tipping point for U.S. assets.

“Stock lows to be tested one last time coming months: we say 'sell the last Fed hike' correct strategy, as in inflationary '70s/'80s (stocks fell in 3 months post-last hike in '70s/'80s)... 'buy the last hike' worked in disinflationary past 2 decades,” Hartnett concludes.

As far as flows for the week to Wednesday are concerned, Harnett noted a “huge” $112.7B inflow to cash.

By Senad Karaahmetovic

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BofA/Merrill Lynch, Senad Karaahmetovic