Bear era begins with real rates at 'crashes, panics and wars' levels - BofA
More than half of S&P 500 (SP500) (NYSEARCA:SPY) components are in bear market territory with real interest rates at levels that coincide with extreme events over the last 250 years, according to Bank of America Securities.
Geopolitics is exacerbating the inflation, rates and growth shocks of 2022. Real rates are so negative the levels are synonymous with "crashes, panics, and wars of the past 250 years," strategist Michael Hartnett and team wrote in Friday's "Flow Show" note.
The "bull era of central bank excess, Wall Street inflation, and globalization" is ending, the note stated. The "bear era of government intervention, social & political polarization, Main Street inflation and geopolitical isolationism" is starting, Hartnett said.
A secular bull market is just beginning in tech (NYSEARCA:XLK) and private equity, he added.
The percentage of stocks in bear market territory, namely off more than 20% from 12-month highs, is high: 76% of Nasdaq (NASDAQ:QQQ) stocks, 51% of the S&P 500 (SPY), and 35% of stocks in the global equity index (NASDAQ:ACWI). 47% of Nasdaq issues are down more than 50%.
"Disney (NYSE:DIS), Visa (NYSE:V), Salesforce (NYSE:CRM), Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB), Biotech (NYSEARCA:XBI), Twitter (NYSE:TWTR), PayPal (NASDAQ:PYPL), ARK (NYSEARCA:ARKK) at or below pre-COVID levels."
Portfolios "should position for stagflation & dollar debasement." He believes that the 1970s show that current conditions are bullish for real assets, commodities (NYSEARCA:DBC), TIPS (NYSEARCA:TIP), small cap value (NYSEARCA:VBR), and emerging markets (NYSEARCA:EEM). During the big stagflation shock of 1973/4, only commodities worked, "just like today". It's important to note that the 2020s will likely be marked with quick and volatile boom-bust economic and investment cycles," Hartnett added.
UBS highlighted five ways to position portfolios during the Russia-Ukraine crisis.
Hartnett's advice about portfolio positioning contrasts with Steve Cress' calmer advice to individual investors.