BofA’s Hartnett Says Odds Favor Correction As Private Clients Exit Stocks

BofA’s Hartnett Says Odds Favor Correction As Private Clients Exit Stocks

"Cautious." That's how one popular strategist is feeling right now, as traders turn the page on a remarkable first quarter (and not just for markets). Rates, regulation and redistribution will be key themes in the second half, BofA's Michael Hartnett said, in the latest edition of his popular weekly "Flow Show" series. That's a familiar refrain from Hartnett. The "three Rs," as it were, "mean we are cautious on asset returns in 2021," he wrote, adding that "SPX 3,400 [is] more likely than 4,4
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6 thoughts on “BofA’s Hartnett Says Odds Favor Correction As Private Clients Exit Stocks

  1. Many investors, and banks’ private clients are probably well represented, have gotten used to investing in a particular group of equities: big US tech, QQQ, SPY. That type of equity might have been 40-50% of a typical private client portfolio circa 2019.

    Those investors, and their wealth managers, have limited appetite for cyclicals, value, small cap, international. The managers’ allocation guidelines, imposed by the bank’s CIO, will only “permit” 10-20% in those secondary equity classes.

    If your wealth management advisor thinks big tech-QQQ-SPY are looking toppy – not an unreasonable view, I think – and peels 10-15% of portfolio weight out of that stuff, he or she is not going to put it all into cycl-sml-intl, because that stuff “can’t” be 20-35% of the portfolio. Ergo, net outflow from equity.

    Tax considerations will also drive flows. With higher taxes on the higher-income looking more likely in the coming year, private clients will be motivated to realize gains at today’s capital gains rates.

    I haven’t seen data, but I’d suspect those private client portfolios are shifting into cash, short duration fixed, tax advantaged munis, private equity funds, and the like.

    1. “With higher taxes on the higher-income looking more likely in the coming year, private clients will be motivated to realize gains at today’s capital gains rates.”

      Well put, JYL.

      But that’s just a silly focus on real life. What’s the matter with you??

      All we should care about is what vol levels are dropping out if the monthly vol history!

      I wonder how soon this nonsense will follow “Unconstrained Bond Funds” (remember them?? It was not all that long ago…) and factor ETFs into the dustbin of Wall Street history, where they belong.

  2. The other thing I will add – from the vantage of 16 years on the institutional buyside then 5 in the private client side before what I’m up to now – is that private clients and the wealth management organizations that serve, if one can generalize, tend to be risk averse, focused on absolute returns, and rather lagging.

    If you track the BofA Fund Manager Survey, it is a good reflection of mainstream portfolio manager views, and thus tends to be a couple to a few months “behind” the start of market shifts. The bulk of private client portfolio allocation decisions are not any “earlier” than the FMS.

    This is just a generalization, of course.

  3. “or at least not until in manifests in an uprising in some country Americans couldn’t identify on an unmarked map if their lives depended on it.”

    Honduras, Guatemala, El Salvador. It is already manifesting there. Americans do care greatly about these places, even if they can’t identify them on a map, because immigration from these places is a huge political issue.

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