Stocks have surged this year without really anything going right, besides the rolling out of error-prone artificial intellligence chatbots. Interest rates have surged to a 22-year high, earnings are down from last year, and pandemic-era savings are being drawn down if not entirely exhausted.
Strategists at Bank of America led by Michael Hartnett have an interesting theory.
“Asset price overshoots [are] the new normal,” they say.
+0.77%went from -$37 in April 2020 to $123 in March 2022, then down to $67 the following 12 months.
+0.42%went from $5,000 in January 2020 to $68,000 in November 2021, down to $16,000 a year later, and up to $29,000 now.
- The S&P 500 went from 3300 to 2200 to 4800 to 3500 to 4600 thus far in 2020s.
“AI is simply the new overshoot,” they say.
Hartnett and team noted that real retail sales — that is, adjusted for inflation — fell at a 1.6% year-over-year clip, which has coincided with recessions since 1967. Real retail sales falls in excess of 3% are associated with hard recessions.
Historically, a 2-3 point rise in the savings rate also is recessionary, and already it’s risen from 3% to 4.6%. The unemployment rate so far hasn’t risen, though a 0.5 point to 1 point rise in the jobless rate also is typically recessionary.
“It would be so ‘2020s’ for the economy to hit a brick wall just as everyone punts ‘soft landing’ into 2024,” they say.
They like emerging market/commodities as summer upside plays and credit and tech as autumn downside plays.