Bank of America says interest rates are at a 5,000-year low and recommends holding quality, defensive stocks for the rest of the year.
The interest-rate calculation comes from BofA’s own data, the Bank of England, Global Financial Data and the 2005 book “A History of Interest Rates.”
“Central banks are keeping global interest rates at 5,000 year lows,” wrote BofA Chief Investment Strategist Michael Hartnett. “At some point in the next 5,000 years, rates will rise, but there is no fear on Wall Street that this happens anytime soon.”
The message of this week’s FOMC meeting was "we will let it [the economy] run hot, [represents an] ok for inflation to be not-so-transitory,” he said.
“The market reaction will be [to push] the U.S. dollar down and U.S. Treasury yields up. Commodities will remain bid, and there will be a rotation to emerging market stocks and bonds.”
Hartnett also sees a “preference for quality and defensive stocks, driven by inflation causing growth and EPS estimates to fall. The U.S. consumer has peaked.”
As for BofA’s advice, it recommends owning “defensive, quality stocks in the second half, … as policy flip-flops will end in a market correction,” Hartnett says.
BofA favors defensive stocks in vaccinated markets, such as the U.S. and European Union. And it likes cyclical reopening stocks in markets with “vaccine-upside, i.e. Japan, China and emerging markets.”
U.S. stocks are falling Friday, as investors weigh concerns about the spread of the COVID-19 Delta variant and disappointing results from online retail giant Amazon (AMZN).