Bank of America’s investment strategist Michael Hartnett has identified six potential bullish surprises that could lead to a significant increase in the stock market gains by the end of the year. These surprises include the end of the Russia-Ukraine conflict, deflationary forces from increased immigration in the US and ChatGPT’s efficiency, an arms race in tech spending, new fiscal bailout culture, powerful tools of the Federal Reserve to stimulate the economy, and stocks being viewed as a better alternative than bonds. However, there are still risks that could hold investors back from going all-in on stocks.
- A potential bullish surprise is an end to the conflict between Russia and Ukraine, which could ease geopolitical tensions and supply chain concerns related to commodities.
- Another potential bullish surprise is an increase in immigration to the US, coupled with the time-saving abilities of ChatGPT, which could help to reduce inflation and allow the Federal Reserve to hold off on interest rate hikes.
- As ChatGPT becomes more popular, many technology companies are likely to invest in catching up, which could be positive for the economy.
- A new “bailout” culture in fiscal policy could prevent a recession, as both parties in Congress tend to spend heavily in response to economic shocks.
- Policymakers such as Congress and the Federal Reserve have tools at their disposal to stimulate the economy in the event of a downturn, which could prevent a major sell-off in stocks.
- If stocks are once again viewed as a safer investment option than bonds, it could lead to an increase in inflows to the stock market.
Bank of America’s investment strategist Michael Hartnett said, if any of these six bullish surprises come true, it could help the economy avoid a recession or a hard landing, and potentially boost the stock market higher. However, there are still risks that investors are cautious about, such as a credit event in shadow banking, a potential conflict between China, Taiwan, and the US, and a hard landing for the economy.
investors can monitor the economy’s likelihood of a hard or soft landing by tracking the price movements of high yield bonds, homebuilder stocks, and the semiconductor index. If the iShares High Yield Bond ETF (HYG) trades above 73, the SPDR Homebuilders ETF (XHB) trades above 70, and the Philadelphia Semiconductor Index (SOX) trades above 2,900, it suggests a soft landing or no recession. Conversely, if those assets trade below those levels, it could indicate a hard landing. As of Friday, the High Yield ETF was trading at $75.15 and the Semiconductor Index was trading at 3,056, indicating a positive outlook for the economy. However, the Homebuilder ETF was trading at $67.
