BofA’s Michael Hartnett believes that stocks are in a “late secular bull market” that could end in either a bubble or a recession. The recent slowdown in equities has been attributed to concerns about inflation and slow growth. The S&P 500 has seen significant gains over the past year and a half, driven by AI investing and a strong economy, but the rally has since stalled.
Hartnett has been warning for months that stocks are approaching bubble territory, and the Federal Reserve’s decision to delay cutting interest rates until the second half of 2024 has further impacted valuations. He also highlighted the possibility of stagflation, as indicated by April’s GDP and consumer price index figures, which were lower than expected. The release of the April jobs report showing only 175,000 jobs added, compared to the forecast of 238,000, also raised concerns.
JPMorgan has also flagged stagflation as a potential threat to the economy, noting that high inflation and sluggish growth could impact risk markets. However, BofA’s head of US equity and quantitative strategy, Savita Subramanian, remains optimistic about the stock market’s prospects. Despite growing worries about stagflation, she believes that the economy is strong enough to continue driving equities higher.
Hartnett’s cautious outlook stands in contrast to Subramanian’s positive outlook, highlighting differing perspectives within BofA. It is unclear how the market will ultimately respond to the current economic conditions, but the debate between the two strategists reflects uncertainty and volatility in the financial markets. Investors will need to carefully consider the potential risks and opportunities presented by the evolving economic landscape in order to make informed decisions about their portfolios.
