Bank of America’s Hartnett says stocks overbought on rate outlook, fiscal boost
Five things you need to know
- President Donald Trump said the US will start sending letters to trading partners today setting unilateral tariff rates to take effect Aug. 1. The rates will range from 10% to 70%, he said.
- Stock-index futures dropped along with the dollar as Trump ratcheted up trade tensions again before next week’s deadline for higher tariffs. US markets are closed for the Independence Day holiday.
- Trump secured a sweeping shift in US domestic policy as the House passed a $3.4 trillion fiscal package that cuts taxes, curtails spending on safety-net programs and reverses much of Joe Biden’s efforts to move the country toward a clean-energy economy.
- Russia unleashed a record air strike on Ukraine, as Donald Trump expressed disappointment over the outcome of his latest phone call with Vladimir Putin aimed at bringing an end to the war.
- India temporarily barred Jane Street from trading in the country’s markets, accusing the US firm of stock-index manipulation and misleading retail investors. Jane Street said it disputes the findings. Here’s how the trades worked.
Bubble watch
Investors in the US stock market have to be feeling pretty good as they take a break for the July 4 holiday: The S&P 500 finished the shortened week at yet another record, bolstered by a jobs report that shows an economy that’s slowing but still solid.
Now comes Bank of America’s Michael Hartnett to spoil the party. The rally has brought the stock market to within striking distance of a sell signal, the investment strategist says in a report.
He says the benchmark would set off the bearish indicator at over 6,300 points — just 0.3% above its close yesterday. Hartnett also reiterated his view that the risks of a bubble were rising as Congress passed a $3.4 trillion fiscal package that includes tax cuts.
Market watchers use a variety of momentum indicators to call short- and medium-term turning points. Hartnett, for example, says that when more than 88% of country stock indexes tracked by MSCI are above their 50- and 200-day moving averages, it’s time to sell, and when more than 88% are trading below, it’s a buy. Currently 82% of them are above those moving averages, he says.
Besides the fiscal stimulus from the tax bill, expectations of US interest-rate cuts also have drawn massive investment flows into US equities, Hartnett noted last week.
To be sure, trying to time a pullback in the market can be humbling.
“Overbought markets can stay overbought as greed is harder to conquer than fear,” Hartnett wrote in a note. —Sagarika Jaisinghani
On the move
- Remy Cointreau falls 7.2% and Pernod Ricard slides 4.7% after China’s Ministry of Commerce said it will impose as much as 34.9% anti-dumping duties on EU brandy after concluding a probe. Among other movers: LVMH (-2.3%), Diageo (-1.3%) and Campari (-1.9%).
- MJ Gleeson falls 5.4% in London after the UK housebuilder warned that pretax profit for the year will be at the lower end of market expectations as it shakes up its struggling homes division.
- Norwegian Air Shuttle gains 3.4% after the airline’s June traffic statistics impressed analysts, with DNB Carnegie saying earnings estimates for the carrier are likely to go up. —Subrat Patnaik
Asian investors on edge
Asian investors are bracing for a flurry of official statements and social media posts as Donald Trump’s tariff deadline approaches.
With trade agreements yet to be struck for Japan, South Korea and India, investors from Fidelity International to Blue Edge Advisors are either hedging or reducing equity exposure, or getting ready to pounce on market declines on expectations that any bad news will be temporary.
The MSCI Asia Pacific Index is trading near its highest level since September 2021 as a playbook based on Trump always backing away from his initial postures spurs risk appetite. Still, only Vietnam in Asia has struck a deal, and Trump said the US will start sending letters today notifying trading partners of new tariff rates.
“Let’s just say my phone battery won’t get much rest this weekend,” said Hebe Chen, a market analyst at Vantage Markets in Melbourne. “My brain is fully prepped to stay alert to what’s shaping up to be an anything-is-possible weekend.”
Nerves have been frayed in Japan, with the Nikkei 225 notching its worst week since May amid a perceived lack of progress in discussions. Indian stocks have also been sluggish despite the nation’s relative lack of tariff exposure.
Conning Asia Pacific Ltd. has “reduced equity exposure by 10% to closer to neutral over the last couple of months” selling AI and defense shares, said Emily Dong, managing director and head of equity. “We have pared exposure mainly due to valuations as we were conscious markets do not fairly factor in the negative consequence from tariff changes. We are moving that money toward fixed income.”
The US president paused the reciprocal tariffs he had announced on April 2 for 90 days to allow countries time to negotiate. The administration has since unveiled formal deals with the UK and Vietnam, though scores of other impacted nations are still in limbo.
News of Vietnam’s pact set off a rally in shares of global companies with factories in the Southeast Asian nation including Apple and Nike. But the details remain sketchy, and some investors see a warning for other countries working toward deals before Wednesday’s deadline. —Bailey Lipschultz and Winnie Hsu
Written by: Sagarika Jaisinghani and Phil Serafino — With assistance from Subrat Patnaik, Bailey Lipschultz, and Winnie Hsu @Bloomberg
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