Bank of America sells US stocks higher on fears that unemployment will be “terrible” in 2023

Strategists at BofA Global Research said it was time to sell the US stock market higher ahead of a possible rise in the unemployment rate next year.

“The bears (like us) are concerned that unemployment in 2023 will be as shocking to consumer sentiment on Main Street as inflation in 2022,” strategists led by Michael Hartnett, chief global equity strategist at BofA Global, wrote in a weekly note. “We are (selling) risk rallies from here because the markets are (running) very strongly on the front negative” pivot here is “payroll”.

The US created a solid 263,000 new jobs in November, a historically strong hiring pace that threatens to prolong a bout of high inflation in the US, raising fears that Fed policy will remain tighter for longer. The unemployment rate held steady at 3.7%, while average hourly earnings rose by nearly double Wall Street’s expectations.

However, BofA’s Bull & Bear Index jumped to 2.0 from 1.4 in the week to November 30, indicating that the “buy signal” for risky assets is coming to an end, according to analysts. “The index stood at its highest level since May 2022 on more bullish bond flows, credit techniques, broadening stocks, (and) hedge fund positioning.”

Other Wall Street banks echoed that sentiment. Marko Kolanovic of JP Morgan Chase & Co., once one of Wall Street’s most vocal speculators, has called for a stock price tumble early next year and argued that the rebound in stocks was overdone after October, as interest rates rose. in the Federal Reserve. American economy. Morgan Stanley’s Michael Wilson, one of the most vocal bears who has correctly predicted this year’s stock market sell-off, has suggested that stocks will hit a new low in the first quarter of 2023.

We see: Why the inversion of the yield curve in October may not spell doom for US stocks in 2023

Investors pulled $14.1 billion from global equity funds over the past week. It was the largest weekly outflows in three months, with $6.1 billion withdrawn from exchange-traded funds and $8.1 billion from mutual funds, according to BofA Global strategists, citing EPFR Global data on Friday. Meanwhile, US equity funds saw total outflows of $16.2 billion in the week ending Wednesday, the largest since April.

In 2022, Bank of America said equity funds saw total inflows of $207 billion, less than the “euphoric inflows” of the previous year. By contrast, the $316 billion in 2022 outflows from trust funds wiped out all 2021 inflows (see chart below).

Source: BOFA Global Investment Strategy, EPFR

US stocks closed mostly lower on Friday with the S&P 500 SPX,
fell by 0.1%, while the Dow Jones Industrial Average fell,
It rose slightly by 0.1%, after trading in the red for most of the session. nasdaq composite,
It ended trading down 0.2%. Over the course of the week, the large-cap index rose 1.1%, while the Dow rose 0.2% and the Nasdaq advanced 2.1%, according to market data from Dow Jones.

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