The firm, led by Chief Investment Strategist Michael Hartnett, also sees reversals coming in the areas of liquidity, free trade, and income inequality. From Bloomberg:
“We are convinced that policy is decisively shifting in a direction that is less positive for ‘deflation assets’ and more positive for ‘inflation assets,’” the team, led by Chief Investment Strategist Michael Hartnett, write. This year and next, investors face a reversal of “bullish” trends that have buttressed globalization and liquidity in recent years, they argue.
In sum, Hartnett and team say it’s time for investors to consider a new normal for equity and fixed-income markets.
“A reversal of these trends, together with a shift toward fiscal stimulus and higher interest rates strongly argues that the excess returns from stocks and bonds in the past eight years are also likely to reverse,” they say.
That reversal could lead to major pullbacks in multiple asset classes, said the firm, which have been overextended in an era of unprecedented monetary expansion. With backlash against income inequality rising, “a shift toward Keynesian policy is likely to raise growth expectations and interest rates,” they said. In turn, higher rates would also hurt stocks.
Bank of America Merrill Lynch joins an ever-growing list of Wall Street analysts turning bearish on global equities markets. Bond king Bill Gross recently lamented “This will not end well,” while John P. Hussman forecasts a 40% to 60% equities crash.
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $0.32 (+0.18%) to $182.84 per share in premarket trading Friday. Year-to-date, the only exchange traded fund that tracks the DJIA has risen 4.9%.