With the big recent rally in stocks, investors should get defensive and find safe havens, according to a one prominent Wall Street firm.
“Risk assets (are) about to top. Ultimately markets (are) about rates and earnings, little else. Central banks have played rates card as aggressively as they can. ECB done, Bank of Japan has nothing in the tank,” Bank of America Merrill Lynch’s chief investment strategist Michael Hartnett wrote in a note to clients Thursday.
“Any U.S. macro strength will elicit Fed rate hike expectations.”
Hartnett cites surging weekly asset flow data in risk assets such as emerging market debt, emerging market equities and high yield bonds. As a result, the firm’s contrarian Global Flow Trading Rule model is now showing a sell signal for risk assets.
The firm found that historically, when flows increase in such a manner, risk assets prices tend to fall over the next few weeks on buyer exhaustion.
Here are the investments the strategist recommends buying instead.