Vaccine Elation Will Lead to the Market’s Fall, BofA Sage Warns

The vaccine rollout has been a tonic for the US stock market. But maybe the good news on jabs will provide some bad market jolts. Reason: The wonderful tidings are priced in and some gathering problems could derail the advance.

That’s the thinking of Michael Hartnett, Bank of America’s chief investment strategist. The giddiness of the market’s climb and the ill effects of the $1.9 trillion in new federal aid, which Congress just passed, will bring a downdraft sooner rather than later, he warned in a client note.

This is a case where there’s a “good news is bad news narrative,” he wrote. Although the S&P 500 has slipped since mid-February, it has risen again for the past three out of four sessions, increasing 0.6% Wednesday. For the year, the index is up 3.8%, and since its plummet 12 months ago as the pandemic appeared, it is ahead 70%.

To Hartnett, that spells frothiness. Further, he admonished, the onset of mass inoculations may have given US investors too much investment euphoria. He pointed to the situation in Israel, the world’s vaccination leader with 82% of the eligible population getting shots. The TA Main 125 index, the most popular gauge for Israeli shares, had a strong rally starting last spring and continuing through January—then stalled out. It’s off 2.8% since its Jan. 20 peak.

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The market’s behavior in Great Britain, where vaccinations also are relatively widespread (32% of the population), tells the same tale, Hartnett argued. He focused on Britain’s mid-cap index, which covers mostly domestically oriented stocks, as opposed to the multinationals that dominate the main index, the FTSE 100. The midcap FTSE 250, after peaking Feb. 16, has been flat.

The two indexes are “stalling on good news,” he contended. The same thing could happen to US stocks, Hartnett said. While the US has the most confirmed cases and deaths from COVID-19, its vaccination drive is progressing well. Among large countries, America is fourth best, with 18.8% of the population receiving shots.

Nonetheless, Hartnett is troubled by Washington’s enormous efforts to boost the US economy, which remains mired in recession. Since last spring, the three rounds of federal relief spending (including the program awaiting President Joe Biden’s signature) have totaled more than $4.5 trillion. On top of that, the Federal Reserve has been buying $120 billion in Treasurys and agency mortgage bonds monthly, with no intention of easing off the pace.

The result, Hartnett maintained, is the “mother-of-all asset bubbles” because of a fiscal “policy overshoot inciting Wall Street price overshoot.” That sentiment is reminiscent of the storied 1996 remark warning from Alan Greenspan, then the Fed chair, that the market was in the throes of “irrational exuberance.”

While Greenspan was counseling caution, today’s central bank is taking the opposite tack, Hartnett observed. The Fed, he declared, actually “wants Wall St irrational exuberance.” This, he went on, all will lead to higher interest rates, bond yields, commodity prices—and a lower US dollar.

Hartnett’s jeremiad is summed up in what he called the “3Rs” of higher rates, more regulation, and aggressive redistribution of wealth. All this, in turn, would lead to a trimming of corporate earnings, as well as falling tech stocks and corporate bond prices, he said.

For this year, Bank of America projects a 3,800 price target for the S&P 500. From yesterday’s close, that would amount to a 2.5% price slide. Cold comfort, for the entire year, the index would be up an uninspiring 1.2%.

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Tags: Alan Greenspan, asset bubbles, Bank of America, Britain, COVID-19, federal aid, Federal Reserve, irrational exuberance, Israel, Michael Hartnett, S&P 500, Stock Market, vaccines

London-based Arabesque Asset Management, which focuses on sustainable investing, has named United Nations Joint Staff Pension Fund (UNJSPF) CIO Herman Bril to be its new CEO, effective in July.

Bril will be responsible for Arabesque’s global asset management business and its suite of artificial intelligence (AI)-driven sustainable investment products and solutions, including the firm’s net-zero climate investment strategy that will launch later this year. He will be based at the company’s new headquarters in London.

Bril, who joined UNJSPF as CIO in 2016, developed and implemented the fund’s sustainable investment strategy, and its assets under management (AUM) grew to $82 billion from $52 billion during his nearly five-year tenure.

“Technology and data are playing a key role in reshaping sustainable investing, spurring market transformation away from industrial-era concepts towards future-fit models and new horizons,” Bril said in a statement. “Arabesque can help drive change through its autonomous, sustainable investment products and solutions.”

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The UNJSPF has not yet named a successor to Bril. In January, the fund placed a job listing for a new CIO that closed Feb. 21.

Prior to becoming CIO at the UNJSPF, Bril was group chief financial officer (CFO) and managing director at Cardano Risk Management for nearly seven years, and prior to that was senior vice president, head of treasury and capital management at Aegon NV.

He was also previously CIO of Dutch insurance firm Interpolis, and was also head of asset management and CIO of Syntrus Achmea Asset Management, where he was responsible for Dutch pension funds with assets under management of €45 billion ($53.6 billion). Bril started his career at Deutsche Bank in Amsterdam, where he was a fixed income derivative trader.

Arabesque also named Ulrika Hasselgren, former global head of sustainability and impact investment at Danske Bank, as the group’s new head of Nordics as well as head of Europe for corporates and sovereigns.

In addition to overseeing Arabesque’s range of environmental, social, and governance (ESG) data and insight services for corporate and sovereign clients in Europe, Hasselgren—who will be based in Stockholm—will lead the group’s activities and expansion in the Nordic region.