As
stocks
pull
back
from
all-time
highs,
a
top
Bank
of
America
strategist
warned
investors
to
be
cautious,
citing
a
series
of
economic
indicators
that
have
historically
signaled
the
end
of
a
rally.
Sebastian
Raedler,
head
of
European
equity
strategy
at
Bank
of
America,
made
his
case
for
a
bearish
outlook,
forecasting
that
the
S
&
P
500
could
sink
a
further
2.6%
to
5,400
and
European
equities
could
slide
by
around
15%.
“If
you
had
a
list
of
when
you
should
be
bearish,
I
would
say
it’s
when
markets
are
at
all-time
highs,
risk
premiums
are
at
an
all-time
low,
earnings
and
margins
are
already
as
high
as
they
can
be,
and
the
U.S.
macro
cycle
recovery
is
in
its
last
innings,”
Raedler
said
on
CNBC’s
“Squawk
Box
Europe”
on
Wednesday.
The
S
&
P
500
has
hit
more
than
30
new
all-time
high
records
this
year,
closing
as
high
as
5,667
last
week
before
falling
back.
.SPX
5Y
line
Raedler
also
said
the
recent
uptick
in
the
unemployment
rate,
albeit
from
a
very
low
level,
was
an
“ominous”
sign.
“Historically,
whenever
the
unemployment
rate
has
started
to
rise,
it
has
never
gone
down
again.
It
was
always
the
end
of
the
business
cycle,”
Raedler
explained.
The
unemployment
rate
unexpectedly
climbed
to
4.1%
in
June
,
tied
for
the
highest
level
since
October
2021.
The
forecast
had
been
for
the
jobless
rate
to
hold
steady
at
4%.
Since
April
2023,
the
unemployment
rate
has
steadily
increased
by
70
basis
points.
The
strategist
added
that
such
conditions
typically
lead
to
higher
risk
premiums
and
lower
asset
prices,
especially
given
the
current
elevated
market
levels.
“Be
cautious
here,”
he
advised.
The
risk
premium
is
the
return
above
the
risk-free
rate,
typically
the
10-year
U.S.
Treasury,
demanded
by
investors
to
hold
higher-risk
assets
such
as
equities.
When
risk
premiums
rise,
share
prices
usually
fall.
Raedler
also
highlighted
the
increase
in
initial
jobless
claims,
up
15%
so
far
this
year,
and
sliding
hiring
intentions
among
small
to
medium-sized
companies.
According
to
the
strategist,
these
factors
suggest
that
more
labor
market
weakness
is
on
the
horizon.
The
joblessness
rate
is
often
inversely
correlated
with
stock
market
returns
over
short
periods.
The
Bank
of
America
strategist
also
expressed
concern
about
consumer
confidence,
which
he
described
as
“collapsing.”
He
noted
that
consumer
confidence
is
typically
a
leading
indicator
for
consumption
and
that
current
levels
are
“consistent
with
negative
consumption
growth.”
The
University
of
Michigan
consumer
sentiment
survey
released
earlier
this
month
showed
a
7.7%
drop
in
July
from
last
year
and
a
3.2%
drop
month-on-month
fall.
The
bullish
view
Hani
Redha,
portfolio
manager
at
Pine
Bridge
Investments,
held
a
more
optimistic
view.
Redha
cautioned
against
prematurely
calling
the
end
of
the
stock
market
rally,
quoting
legendary
value
investor
Peter
Lynch:
“Far
more
money
has
been
lost
by
investors
preparing
for
corrections,
or
anticipating
corrections,
than
has
been
lost
in
the
corrections
themselves.”
You
can
watch
the
full
bull
vs.
bear
debate
here:
