The U.S. inventory rally has already gone too far, and buyers face brutal declines if financial progress crumbles within the second half of the yr, Financial institution of America Corp. strategists say.

The “most painful commerce” is at all times the “apocalypse postponed,” a group led by Michael Hartnett wrote in a notice. The danger is that inflation flares up once more over the subsequent few months, and that the U.S. economic system faces a deeper recession within the second half of 2023 after staying resilient within the first six months of the yr, they mentioned.

World fairness funds had $44.7 billion of inflows previously 4 weeks, in line with the notice, citing EPFR World knowledge. Shares have rallied because the begin of 2023 on indicators of cooling inflation, optimism over China’s reopening and hopes that slower economies will drive world central banks to pause climbing charges.

On Friday, knowledge confirmed employers within the U.S. added extra jobs in January than anticipated, whereas the unemployment fee fell to a 53-year low, underscoring the resilience of the labor market regardless of the Federal Reserve’s most aggressive tightening marketing campaign in a technology. U.S. inventory futures prolonged their hunch.

Hartnett recommends buyers begin promoting the S&P 500 when it’s over 4,200 factors — 0.5% larger from its most up-to-date shut. He expects the benchmark to hit its first-quarter highs earlier than Feb. 14.

The strategist was rightfully bearish all through final yr, although his name for a backside within the first three months of 2023 is but to materialize.

A number of strategists share Hartnett’s view. Morgan Stanley’s Michael Wilson mentioned buyers flocking to the fairness rally shall be dissatisfied as they’re in direct defiance of the Federal Reserve.