BofA expects new lows in stock market, tells clients to mind the 15 November
Equity strategists at BofA Securities told clients to expect new lows in the stock market as US Treasury note yields continue to move higher.
The annualised loss for government bonds year-to-date was already the worst since 1949 but noted but the word on the Street was "Everyone worried about return of capital, not return on capital".
In a research note sent to clients, Michael Hartnett, Elyas Gakou and Myung-Jee Jun highlighted how when adjusted for inflation yields in the US had flipped from -1.0% six months before to 1.0%.
But consumer price inflation in the States was unlikely to fall below 4-0-5.0% "anytime soon", which led them to expect that US yields were headed towards 4.0-5.0% over the next four to five months.
The rate of unemployment was expected to also move to 4.0-5.0%, but over the next four to five quarters.
In parallel, they expected the recession shock to earnings per share estimates to push the S&P 500 to retreat.
Their recommendation? "We say nibble at SPX 3600, bite at 3300, gorge at 3000."
And while history guaranteed nothing, based on the past 140 years, the current bear market would end 19 October with the S&P 500 falling to 3,020.
As an aside, they noted that should the Bank of Japan not budge on on yield curve control, when it met during the following week, then the risk was that the Japanese yen would head rapidly over 150 yen versus the Greenback, as the yield on the 10-year US Treasury note moved above 4.0%.
Linked to the above, they recommended that investors circle 15 November on their calendars, the date of the G-20 meetings in Bali Indonesia.
"Markets may pressure policy makers for new US dollar 'Plaza accord' via US dollar spike; plus potential negotiations re Russia/Ukraine."