Equity strategists at BofA Securities recommended clients “short” the S&P 500 on moves above 4,342.0, where the index’s 200-day moving average was to be found and to fade it above 4,200 points.
In a research note sent to clients, Michael Hartnett and Myung-Jee Jung said they still believed that the ‘end game’ for the S&P 500 would be a drop below the 3,600 point level once stagflation returned between the fourth quarter of 2022 and the first quarter of the following year.
Even if the monthly prints for headline consumer price inflation in the US averaged just 0.3% month-on-month over the next six to nine months, that is to say half their average increase over the past six to nine months, that would stil leave the annual rate of CPI at around 5% in the first quarter of 2023, they argued.
Simply put, in the absence of a big recession, it would be “very tough” for inflation to recede back to a 2.3% pace over the next 12 months, they added.
And should they be wrong? In that case, the best hedges against additional upside would be Emerging Market debt, banks and resources.
