Bank of America: Recent selling wave has not yet hurt US stocks "key"
The recent selling wave has not yet affected the "key points" of the US stock market. The global financial market turmoil has not reached a level that triggers concerns about an economic hard landing. Investors' expectations of a Fed rate cut imply that the preference for stocks over bonds still exists. The S&P 500 index fell by 6%, but still remains above the 200-day moving average. The yield on the US 30-year Treasury bond has not fallen below 4%. These trends indicate that the narrative on Wall Street has not shifted from a soft landing to a hard landing technically
According to Michael Hartnett, chief strategist at Bank of America, the turmoil in the global financial markets has not yet reached a level that raises concerns about an economic hard landing.
Even though the S&P 500 Index (SPX) has fallen by about 6% since hitting a historic high in mid-July, the benchmark stock index remains above the 200-day moving average around 5050 points (top half of the chart), and the yield on the 30-year U.S. Treasury bond has not dropped below 4% (bottom half of the chart).
Hartnett wrote in a memo, "The technical level that would shift Wall Street's narrative from a soft landing to a hard landing has not been breached." He added, "While investor feedback is 'tired,' expectations of Fed rate cuts imply that the preference for stocks over bonds has not ended despite the market sell-off."
Global financial markets have been volatile over the past month as investors worry that the Fed's rate cuts are too slow to prevent an economic recession. However, the S&P 500 Index rebounded after Thursday's initial jobless claims data showed a slower-than-expected cooling in the labor market. The index's decline this week narrowed to 0.5%.
Hartnett stated that the technical levels to watch next are the Philadelphia Semiconductor Index (SOX) and the 200-day moving average of ETFs tracking large-cap tech stocks. He has a more neutral stance on the stock market this year, having been bearish on stocks during the market rebound in 2023.
Hartnett pointed out that the above indices and funds are currently hovering above key technical levels, but if they resume their downtrend, then the next support for the S&P 500 Index will move down to the high point of 2021, indicating a further 10% decline for the benchmark index.
Hartnett reiterated his view that investors should sell on the first Fed rate cut. He expects winners in the artificial intelligence industry to "struggle" in the second half of the year until profits significantly increase.
He also emphasized investment opportunities in some assets that were "previously constrained by a 5% yield, so they will breathe easier at yields of 3%-4%", including government bonds, real estate investment trusts, small-cap stocks, and troubled emerging markets like Brazil