Bank of America is recommending its clients to ‘offload as the market rallies’ as it anticipates the current turbulence in U.S. equities market is not yet over. Analyst Michael Hartnett has sounded the alarm saying that far from a full recovery, the market is on a thin line and can possibly recoil to new lows in the near future. This vulnerability of the market is linked to the gradual trickle-down impact of the Trump Administration’s trade tariffs on U.S. businesses and consequently, the economy.
Hartnett points out that a factor clouding this near-term market perspective is the frailty of the American consumer, many of whom are grappling with the instability of the stock markets. These consumers, who often represent a considerable portion of the investor base, have been largely impacted by this volatility in their wealth. Thus, he recommends, at this juncture, it is wise for investors to resist the temptation of making any equity purchases during brief market recoveries.
Bank of America’s calculations suggest that the equity market upheavals have led to nearly $6 trillion being eroded from household wealth. Hartnett advises that under the current conditions, prudence suggests that investors should be patient and stay clear off equity markets, pending certain crucial milestones being achieved.
Foremost amongst such milestones, according to Hartnett, is evidence of a robust consumer spending, potentially spurred by a firm employment market. Essentially, he indicates that an underpinning factor of a market rebound would be a resurgence in consumer confidence and subsequent spending habits which could be fostered by secure job prospects.
Bank of America states another key condition for investors considering to reenter the equity market revolves around the U.S. Federal Reserve’s readiness to intervene through adjustments in interest rates. Currently, it is predicted by futures market participants that there is a 65% probability of the central bank lowering interest rates by 25 basis points in June of this year.
Hartnett further asserts that until indications of such an action by the Federal Reserve are clear, investors would be wise to maintain their distance from the stock market. It seems apparent that the readiness of the central bank to intervene may be a crucial turning point for the current market volatility.
Lastly, Hartnett advises that before considering returning to the equities market, investors should wait for signs of actual progress on the U.S-China trade negotiations. In essence, he says, clearer signals that a trade settlement between Presidents Trump and Xi Jinping is near should be made evident.
Hartnett emphasizes that, at a minimum, the current U.S tariffs on Chinese imports, which stand at 145%, must be substantially reduced notably lower than 60% before investors should think of making a move. Only with a significant reduction in these trade tariffs can investors potentially perceive some stability return to the market.
For now, it is recommended by Hartnett that investors park their money in safer avenues such as bonds and gold. These alternative investment options can help investors weather the stormy seas of the current volatile marketplace.
The call to steer clear from stock investments during these challenging market conditions stems from a thorough analysis of economic indicators and global geopolitical developments, particularly pertaining to trade relations between the U.S and China, opines Hartnett.
Potential triggers such as resilient consumer spending and proactive measures by the U.S Federal Reserve are viewed as crucial guards against extended market volatility. They are being regarded as barometers of a potential shift towards stability in the equity market landscape.
The expert analysis by Hartnett serves as a strategic guide for those navigating the precarious stock market climate in the current times. It advocates patience, vigilance and a trained eye on key indicators and future possibilities rather than hasty decisions and uncalculated risks during market ebbs and flows.
Overall, the conservative guidance put forth by Bank of America, encouraging a cautious approach towards equity markets and alluding to alternative options, provides a potential roadmap for investors, highlighting the importance of closely watching economic indicators and global developments, and echoing the need for prudence in trading.