BofAML’s Stark Warning: “Sell Before It’s Too Late”

Well, BofAML isn’t mincing words to start the week.

In a note dated Monday, the bank has the following rather unequivocal message for clients:

Sell

Yes, “sell before it’s too late.”

Their rationale? Simple: the US economy is rolling over as is clearly evident from the incoming data.

But more interesting is the bank’s take on the Fed hike.

Essentially, BofAML says there’s no way in hell the Fed is looking through poor inflation prints, etc. In reality, what they’re doing is responding to financial conditions that are too loose and more specifically, they’re looking to short-circuit the out-of-control tech rally that’s created a self-feeding loop wherein FAAMG has become synonymous not only with growth and momentum, but also with low vol. 

If that’s allowed to continue, and if large-cap mutual funds and hedge funds perpetuate it, the fallout from a reversal of the heretofore virtuous circle could be catastrophic.

More below…

Via BofAML

A market with risk off written all over it

A string of weaker-than-expected US data over the past week has only strengthened our view that the US economy is losing momentum. We continue to believe the culprit is the lack of progress in tax reform. Companies after companies across the country have been telling us lately that they are withholding major decisions on hiring and investment until there is greater clarity on tax reform. This should come as no surprise. Running a business without knowing what taxes you will be paying, whether interest and labor costs will be tax deductible, how long you have for capital expenditure depreciation is like driving at night without headlights. If you can’t see, you slow down ─ the increased uncertainty around tax reform has become a damper on economic growth.

The data are bearing out this wait-and-see attitude. Core durable goods orders have been flat for three consecutive months and the three-month moving average of nonfarm payrolls slowed in May to the most sluggish pace since the Eurozone crisis in 2012.

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