"Panic Is Building" BofA Admits; Asks "How Bad Could This Get?"

Tyler Durden's picture


Just one month ago, Bank of America's equity strategist Savita Subramanian told Barrons to stay the course and to expect a 2,200 year end target on the S&P based on a year end 125 EPS forecast and an implied 17.6x forward multiple. Incidentally her 2015 year end S&P500 forecast was an identical 2,200.

It appears that much has changed with the market's "fundamentals" in the month that followed, because in a note released earlier today, the same Savita, when commenting on the "Worst start ever" to a new year by equity markets, is far less concerned with market upside as she is with analyzing the worst case scenarios.

Here is her take on "How bad could this get?"

The risk of a full-blown bear market remains low without a recession, which our economists continue to see as unlikely. The S&P identifies 13 bear markets since 1928, of which 10 have coincided with US recessions. The exceptions were 1961, 1966 and 1987, which (precisely because they did not occur alongside recessions) were relatively short-lived, followed by swift recoveries. In fact, the average 12-month returns from these peaks was -12%, suggesting we would only be a few percentage lower by spring. We advise against panic-selling, and still believe that we have yet to see the highs for this cycle. Our signal checklist (page 2) provides a framework for how the S&P 500 looks today relative to prior market peaks.


While Savita forgets to mention that in none of the prior historical occasions was the Fed "half-pregnant" with a $4.5 trillion balance sheet at a time of tightening conditions, she does correctly note that the current environment is hardly a "supportive backdrop for profits." Specifically she notes that the weak stock market performance comes in the context of:

  • slowing US and global economic growth (US 4Q GDP tracking 1%)
  • collapsing commodity prices (oil prices averaged -42% y/y in 4Q)
  • renewed fears about China (Shanghai Composite -38% since last June)
  • heightened geopolitical tensions (Middle East, North Korea, etc.)
  • the first transition to Fed policy tightening in a decade.

Her conclusion is that "these factors have created a difficult backdrop for corporate profitability, and we forecast 4Q EPS growth of -1% y/y (consensus: -4%)."

Actually, according to Factset, Q4 EPS consensus has now tumbled to -5.3% and dropping by about 1% every 2 or so weeks. More on that in a later post.

So is BofA's conclusion to ignore JPM's "sell any rally" call and BTFD? Not anymore, although while BofA does admit that "panic is building" (suggesting this "sets the stage for a rally"), it also says there is one key ingredient missing: growth.

Near-term caution is warranted, but don’t panic sell


In our framework, there are three key drivers of stock returns: valuation, sentiment and growth. But in the near term, sentiment and growth matter most. Panic is building, most likely setting the stage for a rally, but the missing ingredient here is growth. With analysts cutting estimates at an accelerating rate, increasing China risks and no apparent floor for oil prices, we remain cautious on our near term outlook for stocks.

But not cautious enough to change the year end target of 2,200?

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Mon, 01/11/2016 - 11:49 | 7029294 Sanity Bear
Sanity Bear's picture

Last generation of capital accumulation was nuked by ZIRP and near-ZIRP Fed policies. You want growth, you have to accumulate capital for investment first. Way to late to be whining about it now.

Mon, 01/11/2016 - 11:51 | 7029307 Durrmockracy
Durrmockracy's picture

It's always nice for JPM, Douchebank, BoA to chime in on a problem they helped create...

Mon, 01/11/2016 - 11:59 | 7029344 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

The threat is real. New Megadeth - a look into our near future. Dave Mustain is a born again and is teh real deal.

"The clock runs out, the weakest link

A deadly strike, the threat is real!"



Mon, 01/11/2016 - 22:32 | 7032912 ZombieHuntclub
ZombieHuntclub's picture

Peace sells but who's buying?

Mon, 01/11/2016 - 11:57 | 7029342 orez65
orez65's picture

"You want growth, you have to accumulate capital for investment first"

That is, precisely, the issue.

Capital is being counterfeited by the Federal Reserve and banks through Fractional Reserve Banking.

The Federal Reserve System has to abolished, then you'll have real capital accumulation by savers.

Mon, 01/11/2016 - 12:55 | 7029775 OpTwoMistic
OpTwoMistic's picture

Then real jobs. No jobs no purchasing no growth.

Tue, 01/12/2016 - 09:06 | 7034132 jerry_theking_lawler
jerry_theking_lawler's picture

So real 'capital' is being incrementally destroyed then, right? This is the feeling I get...and holders of real capital know this and are not playing in the casino.

Mon, 01/11/2016 - 13:01 | 7029810 BeerMe
BeerMe's picture

What those in the business world should understand.  Paper pushing bankers definitely don't.  Growth doesn't happen at 0%.  There is no need for businesses to save because right now they have zero incentive/return.  Why pay a 6% bank loan when they pay you nothing?

Instead of investing back into the company (to generate future growth) it turns into stock buybacks.  Smaller companies may just use extra capital to buy inventory or pay debt (neither necessarily creates growth) instead of saving for a future project.

Mon, 01/11/2016 - 13:54 | 7030150 JRobby
JRobby's picture

While we are looking closely at market fundementals right now...........

What we saw made us shit & piss ourselves, vomit uncontrollably, go into convulsions and die.

Mon, 01/11/2016 - 14:35 | 7030427 malek
malek's picture

Blasphemy, according to the Keynesian church of economics!!

Mon, 01/11/2016 - 11:50 | 7029295 Nero_Hedge
Nero_Hedge's picture

Is this the week it starts?

Mon, 01/11/2016 - 11:54 | 7029322 Arnold
Arnold's picture

The Northeast US is in our three week winter, increasing heating oil demand.

So, no not this week.

Mon, 01/11/2016 - 16:54 | 7031350 JRobby
JRobby's picture

OH NO!  It's cold in January. And they were playing golf in short sleeves up there on Xmas eve! Who could have possibly seen this coming!

Mon, 01/11/2016 - 11:50 | 7029301 MadVladtheconquerer
MadVladtheconquerer's picture

And the Fed done shocked da monkey while i was away in Japan!

Janet attached one Pt electrode to one nut and a second Pt electrode to the other nut

and threw da switch!  Da monkey got shocked! 


Shock da monkey tonight!

Mon, 01/11/2016 - 11:51 | 7029306 spastic_colon
spastic_colon's picture

<----------SOTU Red

<----------SOTU Green



No brainer?

Mon, 01/11/2016 - 11:54 | 7029308 OregonGrown
OregonGrown's picture
BofA Asks "How Bad Could This Get?"


PRETTY FUCKING BAD, YOU ASSHOLES!  Thanks for doing your part in ruining everything! I hope all you bastards hang by your shorthairs!

Mon, 01/11/2016 - 12:35 | 7029645 Mr. Universe
Mr. Universe's picture

Jump you mofo's JUMP!

Mon, 01/11/2016 - 12:58 | 7029793 OpTwoMistic
OpTwoMistic's picture

Yeah Oregon, we remember Countrywide Financial.

Mon, 01/11/2016 - 23:46 | 7033285 Tall Tom
Tall Tom's picture

Thanks for doing your part in ruining everything!


Were you protesting the policies when the times were good?


You have a part in this drama to play, as well as some responsibility to admit to and accept.


REMEMBER. Their excuse will be that you allowed it. And actually nothing can be farther than that truth. You did allow it, you participated, were complicit, were compliant, and enjoyed the party in the roaring Nineties and early 2000s.


You, along with most everyone posting, gave this system of fraud and corruption legitaimacy.


Root fer the wars, any?


Now it's time to payz the piper for yer party.


Now those wars? They are really expensive.


Hope that it was worth it.

Mon, 01/11/2016 - 11:53 | 7029320 besnook
besnook's picture

when the big houses tell you to sell, you buy with both hands.

Mon, 01/11/2016 - 11:54 | 7029325 OregonGrown
OregonGrown's picture

I shot my wad using that exact same tactic buying up all the "barbaric relics" i could!

Mon, 01/11/2016 - 11:56 | 7029340 Nero_Hedge
Nero_Hedge's picture

Think I may just blow mine soon too

Mon, 01/11/2016 - 11:54 | 7029321 Seasmoke
Seasmoke's picture

Fuck you Brian Moynihan. Go tell Ken Lewis.

Mon, 01/11/2016 - 13:20 | 7029915 Hal n back
Hal n back's picture

BAC stock only down 11% YTD.


perhaps they shoudl claen up their own business and sector before pumping and dumping others.

Mon, 01/11/2016 - 19:22 | 7032087 noid_rory
noid_rory's picture

Don't worry bro. They will still pin 17 for you on Friday :)

Mon, 01/11/2016 - 22:02 | 7032776 RaceToTheBottom
RaceToTheBottom's picture

Great link.  Glass-Steagall is the Canary in the coal mine.

Anything that does not reinstate is is just criminal games.


Hillary >>>sold out, ethical black hole

Bush>>> Bush, enough said

Trump>>> Who the fuck knows except he will do what gets him more eyes and builds his ego.

Bernie>>>> Don't like his socialist but love his anti WS and his truth talking re WS 

Rest are dickless wonders

Mon, 01/11/2016 - 11:56 | 7029331 skinwalker
skinwalker's picture

Let's assume for a moment that all our worst nightmares are about to come true. 


I have prepared for this as far as my means and knowledge would allow. It may be sufficient to provide for me and mine. Or it may not. There's no way to know until that day comes. If everyhting I've done proves to be insufficient, I can at least know that I made a go of it and didn't flail around madly like some brain dead sheep. Cold comfort, but maybe it'll be enough. 

Mon, 01/11/2016 - 12:06 | 7029403 stant
stant's picture

I had to do it with being the only one with the situational awareness . Makes if very hard to prepare. They are starting see I was right . To late , my best efforts will have to do.

Mon, 01/11/2016 - 12:18 | 7029514 Nero_Hedge
Nero_Hedge's picture

Feel ur pain...somehow, I think that "I told you so" is just not going to be of much comfort as I choose those around me who are worth carrying.

Mon, 01/11/2016 - 12:40 | 7029676 Mr. Universe
Mr. Universe's picture

Worst nightmare? How about dream come true, if it means and end to the Fed and the rotten system that created it. Of course that would be TGTBT. Instead "they" will fix things even better than before....right. After that it's time to fix bayonets.

Mon, 01/11/2016 - 12:49 | 7029733 BandGap
BandGap's picture

Thank God family and some friends started to "get it" about 12 months ago. It had as much to do with the social changes as the financial shifts (which can be less visible and harder to understand).

Start coalescing with the like minded. And screw the fucking election, it is a distraction. One more circus to watch that will mean little in the end.

Mon, 01/11/2016 - 11:59 | 7029353 Janet Shalom Be...
Janet Shalom Bernanke's picture

What she is trying to say is,  "Public don't panic sell until we have unloaded our overweight position in our stocks. "

Mon, 01/11/2016 - 18:10 | 7031760 Sudden Debt
Sudden Debt's picture

hahaha, indeed! That's all I read also.

Now all we need is another "all is well" from the German banks :)


I just showed the -18% revenue drop from Alcoa and all the guy saw was the little text that said: "not as bad as they tought"....

he couldn't even grasp the -18% because he relies on the internet to give him guidance.

And there's plenty like that to go arround.

People really want to belief because for years now, they've been dreaming of becomming a billionaire by buying louzy stocks.

Mon, 01/11/2016 - 12:00 | 7029359 youngman
youngman's picture

China down again..even after the Government bought a bunch...Russia tanking now....USA is up...its a fake rally....we are going to tank this week...there is no growth in the world right now...everyone is trying to save what they have at this point...David Bowie got out at the right time

Mon, 01/11/2016 - 12:03 | 7029376 dizzyfingers
dizzyfingers's picture

Decisions, consequences. Only problem is that gov and banks make ALL decisions. Good for them, bad for everyone else.

Mon, 01/11/2016 - 12:07 | 7029404 jakesdad
jakesdad's picture

that's a pretty damn uninterrupted drop they got going on s&p...


full 1/2 yr of pretty straight down w/only one tiny attempt at a uptick (& that was 10 min in/20 min ago)...


[edit:] & as soon as I post that we see another tiny uptick but smaller/briefer than 1st...  (grabs popcorn)

Mon, 01/11/2016 - 12:07 | 7029410 thunderchief
thunderchief's picture

These are what I would call "cover your ass" statements which are becoming regular in msm lately.

All of these bozos, that have been cheerleading all the way, want to be able to say I told you so now.

Just shows you what they are made of, very little. 

Mon, 01/11/2016 - 12:20 | 7029518 yellensNIRPles
yellensNIRPles's picture


"Our Director of Public Relations, Honest Bob tried to warn you about this 6 months ago. We are sorry that your gambling addiction did not work out for you. Please see Nancy in our Bankruptcy Dept. She'll help you get started on the paperwork so we can take your house and land. She'll be very helpful."


Mon, 01/11/2016 - 12:10 | 7029442 laser
laser's picture

Global margin call?

Mon, 01/11/2016 - 12:30 | 7029461 DC Beastie Boy
DC Beastie Boy's picture


quantitative easing infinity


and this just in as I checked silverdoctors





Mon, 01/11/2016 - 12:26 | 7029571 moonmac
moonmac's picture

Fighting a Great Depression is futile. It makes things worse. My grandparents had their hours cut to 3 days a week, but they got through it easily because everything needed to survive became a lot cheaper. They had more free time to go to parks and visit family. They went hunting and fishing (we have about 10 million Canadian Geese that should be on dinner tables). The Great Depression was easy as pie for most Americans. World War II brought on the terrible times of food rationing, worry and death. Pray the Wall Street Shucksters and Super Rich Politicians don’t create WW3 to get us out of this one.

Mon, 01/11/2016 - 22:08 | 7032813 RaceToTheBottom
RaceToTheBottom's picture

Praying will not stop WS.

They will continue until they are dead.  It is what they do.


The question is what will everyone else do?

Mon, 01/11/2016 - 12:51 | 7029748 conraddobler
conraddobler's picture

It's exactly like a drug addict who is moderately fuctional.  The real damage is in all the things they DON'T do like take pro-active steps to turn things around.

So the errors of omission just keep piling up.

I've said over and over that the one thing the masters of the universe can't do with all this manipulation is make the economy actually function.

The economy functions in SPITE of the things they do but they are building up a horrific disconnect.

The real problems go unaddressed.

Our ponzi economic system can't handle slowing growth, marginally more costly to extract resources and the technological assault on human earning ability in general.

All these things are eroding the foundations of the economy and on TOP of all this the ponzi is being managed to maintain or increase the grift.

It's a perfect storm of old world grift meeting real world new problems and the problems themselves are not being addressed at all.

This will only resolve through crisis protracted as it has been it's likely to result in WW3 and we will all be lucky if it doesn't result in an extinction event.

I truly believe only something horrendous is going to have the power to change peoples approach to building a society.

I pray it comes in time.

Mon, 01/11/2016 - 12:59 | 7029799 RealityCheque
RealityCheque's picture

"The risk of a full-blown bear market remains low without a recession, which our economists continue to see as unlikely."

Bolded for historical reference. If the average economist told me they were lying, I wouldn't believe them.

Mon, 01/11/2016 - 13:12 | 7029869 GeorgeHayduke
GeorgeHayduke's picture

There's nothing more fun than watching a bunch of 'got it all figured out' and self-perceived 'smartest guys in the room' wearing suits while running around in a panic about uncertainty. Screw them. Let them all take up new careers in the service sector they helped create.

Mon, 01/11/2016 - 13:22 | 7029926 Insurrexion
Insurrexion's picture



Does anyone realistically even care about a BoA report?, the Fed's agenda?, or the MSM's bullshit propa-ganga?

I prefer truthiness of the obsure writers out there.




Mon, 01/11/2016 - 13:43 | 7030064 bid the soldier...
bid the soldiers shoot's picture

hey, don't knock Bank of America


They were smart enough in 2008 to buy Countrywide and Merrill Lynch to destroy all the incriminating emails that passed between them.

That's pretty hip, if you ask me.

Mon, 01/11/2016 - 13:33 | 7029993 Batman11
Batman11's picture

The demise of the Western consumer has affected demand for Chinese products and their Keynesian infrastructure investment has run out of money due to the length of the downturn in the West. 

The lack of demand for Chinese products and the end of its Keynesian, debt fuelled stop gap has fed back into global commodity prices.

This is affecting commodity producers in Latin America and Africa.

Spain and Portugal are massively invested in Latin America and the losses are starting to mount.

The vicious circle is now complete and can only spin faster and faster until the global consumer gets some money to spend.

Do NOT follow this link or you will be banned from the site!