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U.S. futures are modestly down in Friday premarket trading as traders eagerly anticipated hearing from Fed Chair Jerome Powell at the Jackson Hole conference.
For Bank of America’s top investment strategist, Michael Hartnett, the sooner Fed plays role of “the courageous lion,” the better for macro and the better for markets.
“Hawkish” Fed is bullish, “dovish” Fed is bearish,” Hartnett tells investors as he believes rates are still “too low,” and QT “too light.”
Hartnett argues that inflation is unlikely to drop below 4% by 2024. Hence, the Fed will be forced to continue hiking, which will result in the Fed funds rate likely exceeding 4% by 2024.
Besides Jackson Hole, Hartnett urges investors to fully focus on bond yields.
“If bond yields “double-top” next 4-8 weeks (i.e. UST 10-year yield fails to exceed 3.48%), autumn narrative becomes peak yields = peak spreads = no new lows in stocks.”
Along these lines, the strategist believes yields are yet to peak. For this to happen, the market needs confirmation from lead indicators of higher yields, like China tech, biotech, and EM debt.
“Higher unemployment most likely catalyst for end of retail “buy the dip,” Hartnett added.
As far as flows in the week to Wednesday are concerned, Hartnett highlighted the biggest outflow ($1.3 billion) from tech funds since November 2021, as well as the biggest inflow ($2.2 billion) to financials since January 22. In the meantime, the market witnessed the 28th consecutive week of outflow from European equities, which makes it the longest streak since 2016.
