BofA Lists 10 Triggers For The Next Crash: “It’s Coming Between Thanksgiving And Valentine’s Day”
Back in mid-July, BofA’s chief investment strategist Michael Hartnett predicted that the “most dangerous moment for market will come in 3 or 4 months.” Well, we are now “between 3 and 4” months since the forecast fate and the most dangerous moment we have experienced since then, ironically, is today’s modest selloff on the 30 year anniversary of Black Monday. So looking back at his forecast, has Hartnett thrown in the towel on calls for a correction, and joined all the other BTFDers? Not quite: instead, Hartnett’s thesis has merely shifted, and he now contends that having entered the market’s melt up somewhat late, a bubble which as shown before has unleashed raging purchases of tech stocks and credit, especially junk bonds…
… he expects the upside S&P momentum to linger, bursting to 2,670 before finally getting swept under the bubble tide. When will this happen? “We believe sometime between Thanksgiving & Valentine’s Day,” or between 1 and 4 months, so even as Hartnett keeps the long-end of his forecast horizon fixed, he continues to expect that the next major move lower may come as soon as 1 month from today.
So how does Hartnett get to this conclusion, and what specific triggers is he looking for to launch the selling? Before we get there, here is an explanation of why we are where we are right now, i.e., what is the consensus trade.
What is consensus?
The zeitgeist of Wall Street can be summarized as follows:
- Bullish credit and equities with “Goldilocks” macro conviction
- No fear of the Fed (or ECB, BoJ…), expectations for a “good” rise in bond yields
- Long positions in stocks, IG/HY/EM bonds, EAFE & EM equities, banks, a “sellers strike” in tech, shorts in commodities & government bonds…i.e. the death of mean reversion
Following his latest Fund Managers Survey (profiled here earlier this week), Hartnett notes that, obviously, “Clients are bullish risk assets”.
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