Dear clients,
Investors should avoid US equities as recession expectations have become universal, says Michael Hartnett of Bank of America Corp.
The strategist is particularly negative about technology stocks, which are more concentrated in the US than in international markets, as they could come under pressure from increased regulatory scrutiny and higher interest rates.
This already can be noted in investment flows. According to a BofA report citing data from EPFR Global, the $2.1 billion withdrawn from U.S. tech funds in the week ending April 12 was the largest buyout since December 2018 and the third largest on record.
Stocks have risen this year as investors put their hopes on rate hikes nearing their peak and expect any recession to be mild. The upcoming reporting season will be another test of how companies are coping with headwinds such as stress in the banking system, higher rates and slowing demand. Hartnett argues that all leading indicators point to a deeper earnings recession than expected.
Cheaper international stocks that are tied to economic growth, such as European, Japanese and emerging markets, will outperform high-priced US growth stocks amid higher borrowing costs, he said.
