"Year-end risk is to the upside not the downside," says BAML chief investment strategist Michael Hartnett and team. "The current brief de-risk on Wall Street will likely be followed by a truce in Washington and renewed stock market strength."
Hartnett sees little to disturb the "Great Rotation" from fixed-income to equities that began about a year ago (see chart of fund inflows). Outflows from stock funds since the D.C. staring contest began are modest compared to the gusher amid the 2011 showdown. "Investors have seen this all before. Call them jaded."
Finally, he notes the Fed "put" - no chance the central bank tapers amid a tanking stock market.
The team continues to recommend overweight positions in stocks, high-yield bonds, and emerging markets.
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