Stocks may be the best inflation hedge on the board, but measured in real terms, US equities are on track for their worst annual performance in almost 50 years.
That was one notable takeaway from the latest weekly missive by BofA’s Michael Hartnett, who wrote that “adjusted for inflation,” US stocks are down more than 18%, on course for the “worst annual drop since 1974.”
The figure (below) illustrates the point.
The four-week moving average for global equity fund flows is now in negative territory for the first time since 2020 and sentiment is obviously quite poor.
On the heels of Amazon’s lackluster guidance and Apple’s warning that the current quarter may be blighted by the impact of supply chain disruptions, Wall Street staggered out of April nursing the worst monthly loss since the onset of the pandemic (figure on the left, below).
Unfortunately for multi-asset investors, bond were no help. In fact, April was the worst month on record for Bloomberg’s gauge (figure on the right, above).
Hartnett described the “zeitgeist.” “Sentiment on bonds and stocks is just awful,” he mused, noting that although the pain trade may be “up” given bombed-out positioning, BofA doubts it’ll be “a big up.” “We would sell it,” he remarked, of any prospective rally.
He also suggested stocks may be at a “tipping point.” Since the beginning of last year, more than $1 trillion has flowed into equity funds. The average entry point, Hartnett said, is 4,274 on the S&P. If the benchmark were to fall below 4,000, it could mean “pain” and “exit,” he added.
Off to a bad start on 2022, and headed to generational pain going into 2023. We’re a long way from even starting a meltdown. Hang on kids, those nft gems are losing altitude every second.
A 5% loss from the 4200 VWAP would result in pain and exit?
I always read articles like this with a narrator’s voiceover adding, “And the FED hasn’t even started QT yet!”
I feel like there’s one more squeeze up here. It feels like 1999/2007 to me. We’ll see.
What I do know is that GDP will not be negative next quarter. The Ds control both houses and government and spending will not be a negative drag on GDP again until after the mid-terms unless inflation re-accelerates (which I find highly unlikely). Heck, Teasury might use every lever they have to keep government spending up until/through Sept. Plus trade deficit will stabilize at least to some degree as the backlog of goods sitting off shore has diminished.
The real economic destruction from current and near term FED moves will be felt next year. I also worry that if the Rs take back the house, government spending will go down massively making what would otherwise be an economic soft patch/minor recession into a deep recession.
With the US dollar at a 20 year high, driven by Fed start of QT and Ukraine (safe US), and 40+% of S&P 500 profits from outside of the US, I don’t see equities turning around anytime soon.
It’s pretty obvious that in this era, many people have never been exposed to inflation or understand the concepts of present and future value. In a wider macroeconomic perspective, if you’ve gained a massive amount of profit during the last 12 years, why would you think that’s a sustainable trend?
“The time value of money is a concept that states a dollar today is always worth more than a dollar tomorrow (or a year from now).”
Risk at this point in time isn’t going to be rewarded!
My portfolios are defensively positioned and the equity portion is nicely outperforming the benchmark, but today still felt like crap. Because it was crap. Gonna do some digesting of this close.
Managements who have yet to report / guide may be trimming their planned guidance. When the biggest and strongest companies in the world (ex-energy) are guiding down, what’s the benefit to being a hero?