BofAML's Michael Hartnett says that clients are no longer in "denial" about recession/bear market risks; but clients not yet willing to "accept" we are already well into a normal, cyclical recession/bear market.
How about now?
As Hartnett warns, if it walks like a bear, and growls like a bear...
US 5y5y forward breakeven (USGG5Y5Y) collapses to lowest level since Mar’09.
Global equity market cap loss in first 9 trading days of 2016: $5.7 trillion (= GDP of France & UK combined).
Since end QE3 (Oct’14) median global stock in MSCI ACWI (2489 stocks) down 23% from its high (as is equal-weighted US stock index – Chart 1). Over same period 1435 global stocks (58% of total) down >20% & 869 (35%) down >30%
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From highs: Biotech (XBI) -43%, Transport (TRAN) -28%, Homebuilders (S5HOME) -23%, small cap (RTY) -22%, FANG stocks -11%...ominously following biotech lower.
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And if you thought this was the buying moment of panic, think again...
Risk-off flows: largest equity outflows in 18 weeks ($12bn) vs $2bn bond inflows & $24bn money-mkt inflows…equity outflow not yet big enough to signal true capitulation
We say long cash, long vol until the 4Cs (China, Commodities, Consumer, Credit) improve; use rallies to reduce risk exposure; resumption of bull trend awaits when/if: a. PMI’s up, b. CNY & oil stability, or c. weaker US$ signaling Fed “pause”.
