Monday, January 24

Bank of America warns of 2022 shock: this is how investors should react


?? BoA strategists see stock exchanges facing a difficult year 2022

?? Interest rate shock warning
?? Look at overvaluation and blistering

The specter of inflation has haunted investors on the stock exchanges for some time. Bank of America experts believe that this topic will continue to occupy investors in 2022. In addition, there is another shock that investors have to be prepared for.

“Interest rate shock” ahead?

In a customer announcement, quoted from “Bloomberg”, the bank’s strategists, including Michal Hartnett, are pessimistic about the stock markets in the new year. The experts justify their skepticism with a “highly unconventional cycle” in which the markets are currently. This cycle will most likely “not end the conventional way,” the press release said.

Inflation will continue to drive interest rates higher, exacerbating the potential risk that the US Federal Reserve will tighten its policy further to prevent prices from rising, even if it were to the detriment of the equity markets. “We know that the sensitivity of asset prices to central bank liquidity has been extremely high over the past decade and that tapering (reduction in asset purchases) is occurring worldwide.” Tapering will result in earnings per share coming under pressure despite rising corporate profits. “That is why we are pessimistic and believe that capital preservation will increase as an issue in the coming year,” explains the strategist in November 2021.

Hartnett and his team identified parallels between the current investment environment and “early stagflation” of the late 1960s and early 1970s. After the “growth shock” of 2020 and the “inflation shock” of 2021, investors should be prepared for the “interest rate shock” in the new year.

Segments with overvaluation and blistering

The experts expressed concern about overvaluations in some market segments. In this context, the BoA strategists explicitly name the crypto market and high-growth technology stocks that brought investors strong returns in 2021. “The mother of all bubbles in crypto and technology remains a ‘fat tail’ [Investments mit extremen Renditeausschl√§gen, Anm.d.R.]”, it says in the message.

This is how investors should position themselves

With this in mind, the experts advise investors in the market to concentrate on receiving cash. According to Bloomberg, they list macro trading recommendations, including long positions in volatility indices, oil, energy, US dollars and real assets.

Finanzen.net editorial team

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