Chief investment strategist Michael Hartnett deviated from his customary pessimistic outlook by stating that technical barriers to an end-of-year surge in the S&P 500 Index had been removed. Additionally, Savita Subramanian, head of US equity and quantitative strategy and an investor in stocks this year, stated that, in comparison to its peak in July, this was a better moment to purchase the US benchmark. She also noted that, on a regular basis, customers have been inquiring as to whether they should hold off on buying an entry point longer.
Hartnett stated earlier in the day that given the cheap price of oil (around $100 per barrel), yields below 5%, and the S&P 500’s current trading above 4,200 points—a critical support level for traders—equity positioning in equities may increase. Notably, he continued, “everyone now anticipates a significant year-end rally.”
Divergent opinions among strategists working under one roof are not unprecedented, but this year’s differences in viewpoints between Hartnett and Subramanian have highlighted the uncertainty surrounding the direction of the equities markets in a situation where interest rates are expected to rise for an extended period of time.
Hartnett has maintained his gloomy outlook for 2023 despite his technical assessment of a year-end rally, even though the S&P 500 has increased by more than 13% this year and has gained in the first half of the year. In May, however, as stocks rose, Subramanian was among the first Wall Street analysts to shift to an optimistic view—albeit shortly before a three-month decline.
Following a decline from its peak in July, the S&P 500 is now expected to have its best week of the year thanks to a decline in oil prices and indications from US Federal Reserve Chair Jerome Powell that the US central bank may be nearing the end of its most aggressive tightening cycle in forty years.
As statistics revealed that job creation in October was more subdued than anticipated and the unemployment rate increased to a level nearly two years above average, traders began to shift their estimates for the first Fed rate decrease from July to June, which helped US equities rally on Friday. This is a dramatic reversal of the trend from last week, when the index momentarily fell below the crucial 4,200 barrier.
According to Hartnett’s note, the Bull & Bear Indicator, an internal sentiment measure of Bank of America, is displaying a contrarian buy signal for the third consecutive week due to low equity market breadth, which refers to the quantity of rising stocks, and significant outflows from high-yield and emerging-market bonds. At 1.4, the indicator has dropped below the 2 threshold, which BofA claims indicates a buy.
A contrarian indicator from the bank is also on the verge of providing a buy signal, according to BofA strategists led by Subramanian earlier this week. At its present level, the indicator suggests a 15.5% price return for the S&P 500 over the following 12 months.
Nevertheless, throughout the week ending November 1, investors kept flooding safe-haven cash funds with cash. Annualised inflows reached $1.3 trillion after flows of over $64 billion in the most recent week, as reported by EPFR Global, which Hartnett referenced. Bonds had inflows of $4.5 billion for the fourth consecutive week, while equity funds saw withdrawals of $3.4 billion.