Investors' risk preference faces "sudden turbulence" due to the Federal Reserve's shift in stance - Bank of America

December 21, 2024 4:21 JST
If the S&P 500 continues like this, it will see a significant decline for the first time in about 3 months on a weekly basis.
Hartnett says the breadth of the world's stock market remains 'disastrous'.
The hawkish shift of the Federal Open Market Committee (FOMC) and the extremely bullish sentiment of stock investors have combined to cause a 'sudden disturbance' in risk appetite, as pointed out by Michael Hartnett, a strategist at Bank of America.

If the S&P 500 continues like this, it will face a significant decline for the first time in about 3 months on a weekly basis.

In a recent report, Hartnett described the continued 'disastrous' situation in the global stock market, stating that to conceal the ongoing adjustments beneath the surface, a relatively small number of high-performing stocks need to 'keep winning'. The best representation of this is the S&P 500 Equal Weight Index (EWI). The index reached its peak in late November and has since dropped by over 7%. However, the drop in the S&P 500 over the same period is less than 3%.
Hartnett noted that in order to prevent a deterioration in investor sentiment before the inauguration of President Trump on January 20th, it is essential for the SPDR S&P Bank ETF, a listed exchange-traded fund (ETF) tracking US bank stocks, to maintain its high levels from 2022. He has previously stated that before Trump takes office, more funds should be invested in stocks outside the USA, such as in China and Europe.