Investors should resist the temptation to purchase equity declines at this time due to a number of factors, including weak consumers, such as those whose household worth has been damaged by this year’s unpredictable stock markets.
According to BofA strategists lead by Michael Hartnett, their “sell-the-rip” tenet will not change unless three market-sensitive requirements are satisfied.
In a letter to clients on Friday, Hartnett and his team stated that they are looking for indications of “resilient consumer spending, perhaps driven by a tight labor market on back of immigration controls” among those.
They calculated that the stock losses this year have depleted household wealth by around $6 trillion, based on Fed data and private-client equities holdings. Based on that data, they pointed to a detrimental wealth effect for the top 1% of income, which coincides with the fact that 50% of U.S. consumer expenditure is accounted for by the top 10% of earnings. According to the strategists, the other 99 percent’s anxiety about inflation is causing their household savings to rise.
Before they recommend purchasing S&P 500 pullbacks, they also want to see evidence that the Fed is prepared to act on rate cuts. They pointed out that while expectations for rate decreases were modest in May, they were stronger in the months that followed. June forecasts for an interest-rate cut are close to 65%, while July expectations are slightly over 90%, according to the CME FedWatch tool.
Lastly, the strategists stated that they will not purchase the S&P 500 until President Donald Trump and Chinese President Xi Jinping have established a “peace deal” over trade. The experts stated that the U.S. tariffs, which are currently at 145%, should, at the very least, fall far short of the 60% level that Trump pledged during his campaign.
After three days of gains, U.S. equities began flat to lower on Friday, partly due to Trump’s declaration that he would not attempt to remove Fed Chairman Jerome Powell and optimism about a potential easing of trade hostilities. In an interview with Time published on Friday, Trump stated that he would look it as a “total victory” if import duties reached 50% in a year.
According to Hartnett and his team, they are still buying “dips” in bonds, foreign equities, and gold (GC00) at the moment and selling S&P 500 and US dollar DXY rallies.
