In the must read 2024 Outlook note (available to pro subs in the usual place) published by BofA's derivatives team led by Benjamin Bowler, the strategists summarize tongue-in-cheekly that "2023 defied almost everyone’s expectations", which is a polite way of saying that everyone got everything this year wrong, to wit: "recessions that never came, rate cuts that didn’t materialize, bond markets that didn’t bounce (except in short-lived, vicious spurts), and rising equities that pained most managers who remained cautiously underweight." The only thing that shouldn’t have been a surprise, Bowler writes, was the fact that 2023 was such a surprise, given we are in an unprecedented era of macro uncertainty.
Below we excerpt some of the key observations from the report including a handful of charts which we believe traders will find very useful, starting with Bowler's astute recap of what is now a completely broken "market":
Years of conditioning by policymakers and cautious positioning have made upside a greater fear than downside, and this more immediate threat battles for attention with material (but more ephemeral) fundamental risks. This has led to erratic, highly reflexive markets, as they flip-flop between narratives that fit the most recent price action. It has also caused actives to underperform, with hedge funds failing to beat cash this year.