Content adapted from this Zerohedge.com article : Source
It is no secret that both BOA and Goldman are warning of investor euphoria.
Even so, BofA CIO Michael Hartnett noted that investor rush to risk assets moderated of late sending the Bull & Bear indicator to 7.6 from 8.1.
One reason for great concern is that in 8 out of the 11 instances, when the indicator dropped below 8, global stocks saw further losses in the ensuing 3 months.
Hartnett sees a S&P of 2534 which would eliminate $6T from the global equity market cap. This is the figure that was lost in the 10% pullback in February.
He gives 6 reasons why the market could test those lows:
1. Positioning: peaking optimism…Bull & Bear Indicator still in v bullish territory; big equity inflows this week; GWIM private client asset allocation 61% stocks, 33% cash & bonds *
2. Profits: peaking…booming US 12-month forward EPS estimates now +20% (we say "peak"- Chart 4)…booming US consumer confidence 130.8, unemployment rate 4.1%, ISM 60.8…"buy humiliation & busts, sell hubris & booms"
3. Policy: peaking…global central banks have played "whatever it takes" card, by year-end Fed will have hiked 9 times, fiscal card played aggressively…no more stimulus to discount; only policy left to discount is... *
4. Protectionism:s tarting…and market pricing as "deflationary" (yields down, stocks down…and stocks down may be necessary to stop escalation of trade war) *
5. Price action: tech not making new highs (e.g. SMH, XLK), credit spreads not making new lows (H0A0, C0A0), homebuilders (XHB) are making new lows; global stocks (ACWI -0.3% YTD) no longer outperforming global government bonds (W0G1 -0.9%) *
6. Pain: trough in inflation, rates, volatility (all 9-year drivers of bull in corporate bonds & equities) now challenging bullish consensus.
Hartnett feels the topping process has started and we give 1966/69 as an indicator.
Non-adapted content found at zerohedge.com: Source
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