Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA's chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.
Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can't wait to see what 2018 reveals).
- Da Vinci’s “Salvator Mundi” sold for staggering record $450mn
- Bitcoin soared 677% from $952 to $7890
- BoJ and ECB were bull catalysts, buying $2.0tn of financial assets
- Number of global interest rate cuts since Lehman hit: 702
- Global debt rose to a record $226tn, record 324% of global GDP
- US corporates issued record $1.75tn of bonds
- Yield of European HY bonds fell below yield of US Treasuries
- Argentina (8 debt defaults in past 200 years) issued 100-year bond
- Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP
- S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low
- Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap
- 7855 ETFs accounted for 70% of global daily equity volume
- The first AI/robot-managed ETF was launched (it’s underperforming)
- Big performance winners: ACWI, EM equities, China, Tech, European HY, euro
- Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira
As Hartnett summarizes, "2017 was a perfect encapsulation of an 8-year QE-led bull market"
- Positioning was too bearish for either a bear market or a correction in risk assets.
- Profits were higher than expected (global EPS jumped 13.4%) this time thanks to a synchronized global PMI recovery.
- Policy was aggressively easy, as the ECB and BoJ bought a massive $2.0tn of financial assets; fiscal policy also easy (e.g., US federal deficit up $81bn to $666bn).
- Returns were abnormally high in 2017 (Table 3); corporate bonds and equities soared, but the biggest surprise was stubbornly low government bond yields: thematic leadership of scarce “growth” (e.g. tech stocks), “yield” (e.g., HY, EM and peripheral EU bonds) and “volatility” once again remained the core of the bull.