Key Recommendations for Q2#
Bank of America strategists, led by Michael Hartnett, have identified five top trades for the second quarter of 2023. These include curve steepeners, investments in China, consumer cyclicals, semiconductor chips, and commodities. The phrase "Money does grow on Cs" encapsulates their strategy, emphasizing these sectors as promising opportunities.
Economic Outlook and Market Trends#
The strategists believe that Wall Street is anticipating a return to a strong economic narrative. They suggest that the market is underestimating potential shifts, such as a focus on affordability by political leaders ahead of midterm elections, a possible easing of trade tensions between China and the U.S. in May, and efforts to dominate the semiconductor and natural resource sectors in the context of artificial intelligence advancements.
Commodity Investments#
Hartnett is particularly advocating for investments in natural resources, citing that robust portfolio returns this year are prompting investors to increase their exposure to this asset class. He references Bank of America’s “permanent portfolio,” which allocates equal parts to stocks, bonds, cash, and commodities. This strategy has yielded a remarkable 26% return year-to-date, marking the best performance since 1933.
Fund Flows and Market Activity#
In terms of market activity, global equity funds attracted $25.9 billion in the week ending April 22, with U.S. stocks seeing $18 billion in inflows for the fourth consecutive week. Year-to-date, equity inflows are on track for a record $1 trillion. Investment-grade bond funds also saw significant inflows of $12.4 billion, while cryptocurrencies attracted $1.7 billion, marking the largest weekly inflow in seven weeks. Conversely, money market funds experienced outflows of $19.8 billion.
Current Market Sentiment#
BofA’s Bull & Bear indicator remains steady at 6.3, indicating a neutral market sentiment. This is a decline from the extremely bullish readings above 8.0 observed in late 2022 and early 2023.