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Michael Hartnett, a leading strategist at Bank of America, has indicated that a severe economic downturn in the US remains a likely scenario. In a research note circulated to clients, Hartnett reaffirmed his position that the market has not fully priced in the risks associated with a "hard landing."
Hartnett's comments come ahead of the release of the August US non-farm payrolls report. He advised clients to "sell the first rate cut" and suggested focusing on bonds, precious metals, and defensive sectors as part of a strategy for navigating the market.
Should the August non-farm payrolls figure fall below 100,000, Hartnett recommended "selling the rip" in such a scenario. He predicts that such a report would signal a hard landing, potentially prompting the Federal Reserve to implement a 50 basis point rate cut at its meeting on 17-18 September. This would likely lead to the yield on the 10-year US Treasury note reaching 3%, oil prices dropping to $60 per barrel, the Japanese yen weakening to 135 against the US dollar, and the Semiconductor Index (SOX) falling to 4,000.
Conversely, if the payrolls data for August shows a range between 150,000 and 175,000, accompanied by an increase in average hourly earnings of less than 0.1%, Hartnett views this as indicative of a softer landing. In this case, a rebound in technology and energy sectors could occur in September, particularly if the Federal Reserve decides to cut rates by 50 basis points.
Hartnett’s recommendations reflect his outlook on the current economic climate and potential market responses based on forthcoming economic data.
