Bull markets don't end with such high cash levels and low leverage, says BAML chief investment strategist Michael Hartnett. What we're seeing now is a "hard reversal" period, with "extreme positions" being quickly eliminated. To wit, the Nikkei's worst 5-day stretch this week since the earthquake/tsunami of 2011, while money flows into previously-hated emerging markets (EEM -0.3%). EM equities, says Hartnett, have outperformed the Nikkei by nearly 1K basis points since mid-March.
He expects to hear policy doves again make themselves heard as markets slip. “The biggest risk is that markets lose trust in vacillating Fed, the only policy maker the market truly trusts."
The real correction, says Hartnett, comes this fall, as the Fed wraps up QE and the idea of rate hikes really begins to come into focus.