Bank of America is advising investors to short the S&P 500 (SPY) until two things happen. First, the Federal Reserve needs to cut interest rates significantly, and second, the U.S. and China need to pause their trade war in order to ease the risk of a global recession. Chief investment strategist Michael Hartnett said that the U.S. is moving away from being the world’s main buyer of goods and the go-to place for global investments. He called this shift the end of “U.S. exceptionalism” and the start of a U.S. rejection period.
Hartnett also expects U.S. interest rates to keep rising. Until things change, he recommends buying short-term government bonds like 2-year Treasuries and betting against the S&P 500 until it drops to 4,800. He said that if the Fed or the government panics and takes strong action, then it could be a good time to invest in riskier assets since the recession might be short and shallow. However, for now, rising rates, falling stocks, and a weaker dollar are signs that investors are pulling money out, which may pressure officials to act.
BofA also shared how much U.S. financial assets are owned by foreign investors. Interestingly, they hold 33% of U.S. Treasuries, 27% of U.S. corporate bonds, and 18% of U.S. stocks. When putting dollar figures to these percentages, they come out to about $8.5 trillion, $4.4 trillion, and $16.5 trillion, respectively. In addition, Treasuries saw their largest weekly inflow ever this week, with $18.8 billion added. At the same time, foreigners sold $6.5 billion in U.S. stocks and $3 billion in corporate bonds while buying $600 million in Treasuries. This suggests a shift to safer investments.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 412 Buys, 84 Holds, and eight Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $616.20 per share implies 16.9% upside potential.
