Risk On? Not So Fast Warns BofA
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With the S&P 500 near 5-year highs and with 10-year bond yields inching closer to 2 percent, strategists at Bank of America continue to highlight a shift in investor sentiment away from safety toward risk, a theory they call the "Great Rotation". Despite the theory, strategists warn of a short term reversal.
"If we are truly at an inflection point for investor behavior, where funds begin the journey from bonds to equities, then perhaps it would be [mean-spirited] to argue for short-term downside in equities," said Chief Investment Strategist Michael Hartnett. "We remain confident that this is the destination and that only a recession or an ugly collapse in the bond market is likely to derail the coming rotation. But the journey there is most unlikely to be smooth."
With this in mind, BofA warned investors to be ready for a pullback. This pullback, in Harnett's view, would be "healthy", though perhaps not overly kind to some investors' near-term ROI.
Readers should consider themselves officially forewarned. Look for weakness in Japanese real estate and small cap stock as clues the market is about to correct. Investors can also look for contrarian signals in fund manager cash balances, which should come down, a run in commodities, and a rise in safe-haven currencies like the Swiss franc. These are signs of market fatigue, says Harnett.
"If we are truly at an inflection point for investor behavior, where funds begin the journey from bonds to equities, then perhaps it would be [mean-spirited] to argue for short-term downside in equities," said Chief Investment Strategist Michael Hartnett. "We remain confident that this is the destination and that only a recession or an ugly collapse in the bond market is likely to derail the coming rotation. But the journey there is most unlikely to be smooth."
With this in mind, BofA warned investors to be ready for a pullback. This pullback, in Harnett's view, would be "healthy", though perhaps not overly kind to some investors' near-term ROI.
Readers should consider themselves officially forewarned. Look for weakness in Japanese real estate and small cap stock as clues the market is about to correct. Investors can also look for contrarian signals in fund manager cash balances, which should come down, a run in commodities, and a rise in safe-haven currencies like the Swiss franc. These are signs of market fatigue, says Harnett.
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