‘This Screams Fed Tightening & Late Cycle’

BofAML has a message for you and that message is this:

It’s the Fed stupid.

If you’re following along, you know that this has been a tough year for bonds, cash is back (TINA is dead) and lots of “people” (including Goldman, Jeff Gundlach, and Jeff Gundlach’s joker costume) are pretty sure late-cycle dynamics are going to translate into more gains for commodities going forward.

If you’re BofAML’s Michael Hartnett, this isn’t complicated.

“2018 returns scream Fed tightening & late cycle,” he writes in his latest piece, before delivering the following lay of the land:

  • commodities 12%
  • US dollar 2%
  • stocks 2%
  • cash 1%
  • bonds -2%

He continues by noting what’s outlined at length in the linked posts above. “Annualized commodities [are] on course for [their] best year since 2002,” he writes, adding that losses on 10-year USTs are the worst since 1931 (at -12.6%) while the decline in AAA IG (-11%) is the worst on record.


Other highlights include the following on credit inflows likely having peaked:

Inflows to credit complex peaking. $300 billion in 2017 versus flat past 4 months as Argentina, Turkey, Italy, Tesla tremors sparked by 3% yields.

He also flags a record weekly redemption from Italy-only funds (around 6% of AUM, by BofAML’s calculations):


And perhaps the only chart you really need:


It’s a not-so-brave new world.


4 thoughts on “‘This Screams Fed Tightening & Late Cycle’

  1. First, as always, thank you for your work and time! Second, dumb Joe E*Trade question. What does IG stand for? Google and running through a list of potential word combinations in my mind hasn’t gotten me anywhere. Know HY is high yield, but IG?

  2. IG is investment grade.

    Shoutout as always to Heisenberg. Thanks for making me a whole lot smarter.

    Enjoy the weekend.

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