Strategists at BofA Global Research said it is time to sell the US stock market rally ahead of a potential rise in the unemployment rate next year.
“Bears (like us) fear unemployment in 2023 will be as shocking to Main Street consumer sentiment as inflation in 2022,” strategists led by BofA chief global equity strategist Michael Hartnett wrote in a weekly note. global. “We are (being) selling risk rallies from here as markets (are) too aggressive with negative ‘pivot is here’ payroll.”
The US created as many as 263,000 new jobs in November, a historically strong pace of hiring that threatens to prolong a period of high inflation in the US, raising fears that Federal Reserve policy will remain tighter for longer. The unemployment rate held at 3.7%, while average hourly wages increased by twice Wall Street’s forecast.
However, the BofA’s Bull & Bear indicator jumped to 2.0 from 1.4 in the week to Nov. 30, indicating a “buy signal” for risk assets is nearing its end, according to analysts. . “The gauge settled at its highest since May 2022 on more bullish bond inflows, credit technicals, equity breadth and (e) hedge fund positioning.”
This sentiment has been echoed by other Wall Street banks. JP Morgan Chase & Co.’s Marko Kolanovic, once one of Wall Street’s loudest bulls, called for stock prices to stumble early next year and argued that the stock’s rebound was exaggerated after October, while Federal Reserve interest rates go up. the US economy. Morgan Stanley’s Michael Wilson, one of the loudest bears who correctly predicted this year’s stock market selloff, also hinted that stocks will hit a new low in the first quarter of 2023.
See: Why October’s yield curve inversion may not seal the fate of US equities in 2023
Investors have withdrawn $14.1 billion from global equity funds in the past week. It was the largest weekly outflow in three months, with $6.1 billion taken from exchange-traded funds and $8.1 billion from mutual funds, according to strategists at BofA Global, citing EPFR Global data from Friday. Meanwhile, U.S. equity funds reported a total of $16.2 billion in outflows in the week to Wednesday, the largest since April.
In 2022, BofA said equity funds saw total inflows of $207 billion, below the previous year’s “euphoric inflows”. In contrast, 2022 outflows from credit funds of $316 billion canceled out all 2021 inflows. (See chart below)
US stocks closed mostly lower on Friday with the S&P 500 SPX,
down 0.1%, while the Dow Jones Industrial Average DJIA,
it gained slightly 0.1%, after trading in the red for most of the session. The Nasdaq Composite COMP,
it closed down 0.2%. For the week, the large-cap index rose 1.1%, while the Dow gained 0.2% and the Nasdaq advanced 2.1%, according to Dow Jones Market Data.