Bank of America’s CEO, Brian Moynihan, has issued a stark warning about the enduring impact of the last 15 years of monetary policy on the economy. Moynihan suggests that individuals should brace themselves for 6-7% mortgage rates in the long run. If inflation persists, the Federal Reserve may opt for further rate hikes, posing a potential threat to stock markets.
Moynihan’s caution emphasizes that higher interest rates are not a transient phenomenon but rather a lasting reality. He points out the dangers of complacency in the current market environment. The median stock in the S&P 500 currently exhibits the lowest short interest as a percentage of market cap since the tech bubble’s peak, indicating a potential risk of overvaluation.
Market indicators signal a concerning level of optimism, with record-high asset managers’ net CFTC positioning on US equities, both on the S&P 500 and Nasdaq. Analysts, having learned from past mistakes, are now revising earnings estimates to more realistic expectations. However, echoes of the 1970s, marked by three waves of inflation and equity market challenges, raise the specter of a similar period of uncertainty.
Adding to the apprehension, the BofA Global Financial Stress Indicator recently surpassed its April 2021 extreme, indicating the least amount of financial stress since the pandemic’s onset in February 2020. This minimal stress level might be the best-case scenario, implying potential worsening conditions ahead.
Furthermore, the amount of disposable income required to purchase food has reached its highest level in over 30 years, highlighting persistent inflationary pressures. With limited room for the Fed to support markets due to tightening measures, the liquidity crunch is evident as buyout firms resort to creative methods to generate liquidity.
Investors are urged to exercise caution and remain vigilant as the market contends with a confluence of factors that could heighten risk levels in the coming months.
Sources:
Bank of America’s CEO Brian Moynihan sees what the insanity of the last 15 years of monetary policy has done to the economy.
He says get used to 6-7% mortgage rates for the long run.
Higher rates aren’t going away. pic.twitter.com/RSlCczmpaz
— QE Infinity (@StealthQE4) February 22, 2024
This is when the #StockMarket will reach maximum risk. I was astonished…#Nvidia pic.twitter.com/BdePX630r5
— Northstar (@NorthstarCharts) February 22, 2024
Complacency.
Today’s median stock in the S&P 500 has the lowest short interest as a percentage of market cap since the peak of the tech bubble.
H/t to @dailychartbook pic.twitter.com/IBnHtig2Q0
— Otavio (Tavi) Costa (@TaviCosta) February 22, 2024
"Futures positioning has been particularly bullish, with record levels of asset managers' net CFTC positioning on US equities, both on the S&P 500 and Nasdaq." t.co/PnaTia0rmJ via @dailychartbook pic.twitter.com/jfbTxtgQfY
— Jesse Felder (@jessefelder) February 21, 2024
the pile in in tech that @profplum99 is talking about in spaces right now pic.twitter.com/1KXZjHtsuS
— Tracy (𝒞𝒽𝒾 ) (@chigrl) February 21, 2024
Analysts have finally begun cutting their earnings estimates to more realistic expectations They had been repeating the SAME mistake they made in 2008
ht g.o.t. pic.twitter.com/CRWMH4i8zq
— Win Smart, CFA (@WinfieldSmart) February 22, 2024
Three waves of inflation and equity market performance in the 1970s pic.twitter.com/5v6Q8eYWtm
— Win Smart, CFA (@WinfieldSmart) February 22, 2024
The BofA Global Financial Stress Indicator "just exceeded its April 2021 extreme, showing the LEAST amount of financial stress since the Pandemic (February 2020)."@biancoresearch pic.twitter.com/zIqysoP6Tt
— Daily Chartbook (@dailychartbook) February 21, 2024
GS Risk Appetite Index pic.twitter.com/bC36wyUriS
— Win Smart, CFA (@WinfieldSmart) February 22, 2024
The amount of disposable income needed to buy food hits highest level in more than 30 years pic.twitter.com/oIJtve8w28
— Win Smart, CFA (@WinfieldSmart) February 21, 2024
"Buyout firms are resorting to creative methods to drum up liquidity…extending the ownership period for assets through continuation funds and selling minority ownership in portfolio companies…rather than pursuing a full sale" and "shifting assets between funds" pic.twitter.com/V30jUmQ7ej
— Melody Wright (@m3_melody) February 21, 2024
Because #Biden forgave another $1.2 billion in #StudentLoans loans to buy votes, everyone in America will pay higher prices as a result. That's because money not used to repay loans is freed up to buy goods and services, bidding up prices. That's the way the #inflation tax works.
— Peter Schiff (@PeterSchiff) February 21, 2024