In a surprising turn of events, stocks may be viewed as a safer alternative than bonds, according to Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.
This potential shift in perspective could lead to a surge of inflows into the stock market, as investors seek safer and more lucrative investments.
However, there are still risks that are holding investors back from going all-in on stocks. These risks include a hard landing for the economy, a credit event in shadow banking, and a potential conflict between China, Taiwan, and the US.
To determine whether a hard or soft landing is ahead, Hartnett recommends investors follow the price action of high yield bonds, homebuilder stocks, and the semiconductor index.
If the iShares High Yield Bond ETF (HYG) trades above 73, the SPDR Homebuilders ETF (XHB) trades above 70, and the Philadelphia Semiconductor Index (SOX) trades above 2,900, it would signal that a soft landing or no recession at all is in the cards. If these assets trade below those levels, it would suggest the opposite.
As of Friday, two of these signals suggest a positive economy ahead, with the High Yield ETF trading at $75.15 and the Semiconductor Index trading at 3,056. However, the Homebuilder ETF is trading at $67, which is below Hartnett’s recommended threshold.
Investors need to be aware of these potential indicators and monitor their investments accordingly. By following these signals, investors can better position themselves for success in an ever-changing market.
However, it’s important to remember that investing always comes with risks, and there are no guarantees. It’s essential to conduct thorough research, diversify one’s portfolio, and seek advice from financial professionals.
In conclusion, while the stock market may currently be viewed as less dangerous than bonds, investors still need to proceed with caution and keep a close eye on potential risks and indicators. By doing so, they can position themselves for success in an ever-changing market.