New York- (HedgeCoVest.Com) – If you are a traditional long-only investor, you probably don’t want to hear what Bank of America Chief Investment Strategist Michael Hartnett is saying about this summer. In a note to clients on Tuesday, Hartnett wrote:
We have been urging caution. No bear market, but mid-2015 environment is lose-lose: end of global easing, start of Fed hiking must raise vol; conversely no rate hike would be because GDP/EPS poor or a financial accident. Conviction & volumes thus await unambiguous break of recent trading ranges, particularly EUR 1.05-1.15, as well as macro resolution…good data, Fed hike, no adverse market/macro impact. Only then risk allocations rise with certainty. Until then, we continue to think gold, cash, vol, developed market banks perform well, and would sell into any frothy, speculative moves to upside in tech, Japan, China.
While some of the comments are cryptic, the focus is on the actions of the Fed hiking rates and the rest of the world ending their easing programs. If the interpretation is accurate, Hartnett is saying that these actions are going to increase volatility. Secondly, he is saying that if the Fed doesn’t hike rates it will be because economic growth is slowing or poor earnings performances from stocks.
The last line is interesting as well as he denotes caution toward the tech sector and the Chinese and Japanese markets.
While a drawdown or an increase in volatility will hurt traditional investments, if the past is any indication, hedge fund strategies and indices should outperform the market if Hartnett’s predictions are accurate.