Puzzled by the stock-market surge? Overshoots are the new normal, Bank of America strategist says

Asset prices aren’t hitting their marks of late.

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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.

Read more: Those extra pandemic savings are now wiped out, Fed study finds.

Strategists at Bank of America led by Michael Hartnett have an interesting theory.

“Asset price overshoots [are] the new normal,” they say.


  • Oil CL00, +0.77% went from -$37 in April 2020 to $123 in March 2022, then down to $67 the following 12 months.
  • Bitcoin BTCUSD, +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.

The S&P 500 SPX, +0.99% has gained 18% this year as the Nasdaq Composite COMP, +1.90% has rallied by 34%.

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.