Predictions for 2024 point to a potential revival in beleaguered bonds, driven by rising interest rates and tightening financial conditions that heighten the economy’s risk of a severe downturn, according to Michael Hartnett of Bank of America.
According to Hartnett, the ongoing recession reflected in bond and stock markets is expected to transition into tangible economic data. This shift is anticipated to trigger a significant upswing in bond prices, making bonds a favored asset class in the early part of 2024.
Despite maintaining a bearish stance throughout the year due to the looming threat of an economic downturn from rising interest rates, Hartnett’s team is eagerly awaiting signs of widespread selling and a potential recession or credit event that could prompt more favorable policy measures, which could trigger a significant asset rally.
The bond market has been volatile since the Federal Reserve hinted at prolonged elevated interest rates. Recent nonfarm payroll data indicating a hiring surge has raised expectations of further interest rate hikes. Yields on 10-year Treasuries are near 4.9%, and the 30-year bond is above 5%, both at levels unseen since 2007.
Despite bond market turbulence, investors continue to pour into Treasury funds, marking the 34th straight week of inflows, while equity funds also receive substantial investments. However, caution is growing, with investors allocating a significant $70.8 billion to cash, the largest inflow since July.
Hartnett advises selling S&P 500 stocks when they reach the upper range of 3,600 to 4,200, as he remains convinced that the bear market still has unfinished business.
