The stock market is becoming a 'lose-lose' situation
In a note to clients on Tuesday, Bank of America's Michael Hartnett wrote that with the Fed set to raise rates and the US economy underperforming, we could be be facing a tough period for investors this year.
Hartnett writes:
We have been urging caution. No bear market, but mid-2015 environment is lose-lose: end of global easing, start of Fed hiking must raise vol; conversely no rate hike would be because GDP/EPS poor or a financial accident. Conviction & volumes thus await unambiguous break of recent trading ranges, particularly EUR 1.05-1.15, as well as macro resolution...good data, Fed hike, no adverse market/macro impact. Only then risk allocations rise with certainty. Until then, we continue to think gold, cash, vol, developed market banks perform well, and would sell into any frothy, speculative moves to upside in tech, Japan, China.
Now, of course, some of this language is a bit inscrutable, but the overall point here is that unless the situation in markets changes - namely the euro trades outside of its $1.05-$1.15 against the US dollar and the Federal Reserve raises rates without shocking markets - investors could be in for a bumpy ride.
In the same note, Business Insider's Oscar Williams-Grut highlighted Hartnett's comments on how investors are in the grip of "Stockholm syndrome" because there is a trust central bankers don't want to hurt markets, which more or less forces investors to maintain a "risk-on" positioning, buying things like stocks and lower-rated bonds.
So as Hartnett sees it, it could be shaping up to be a tough summer.