According to Michael Hartnett, chief strategist at Bank of America, turmoil in global financial markets has not yet reached a level that would raise concerns about a hard landing for the economy.

Even though the S&P 500 (SPX) has fallen about 6% since its mid-July all-time high, the benchmark index remains above its 200-day moving average of around 5,050 (top half of the chart), while the U.S. 30-year Treasury bond yield has not fallen below 4% (bottom half of the chart).

“The technical levels that could shift the Wall Street narrative from a soft landing to a hard landing have not yet been breached,” Hartnett wrote in a memo. He added that “despite investor feedback of ‘exhaustion,’ expectations of Fed rate cuts mean that the preference for stocks over bonds has not ended with the market rout.”

Global financial markets have been roiled over the past month as investors worried that the Federal Reserve would be too slow to cut interest rates in time to avert a recession. However, the S&P 500 rebounded after Thursday's jobless claims data showed the job market was cooling more slowly than expected. The index narrowed its weekly loss to 0.5%.

The next technical levels to watch are the Philadelphia Semiconductor Index (SOX) and the 200-day moving average of ETFs that track large-cap tech stocks, said Hartnett, who is more neutral on stocks this year after previously being bearish on them through a 2023 rally.

Hartnett noted that the above-mentioned indexes and funds are currently hovering above key technical levels, but if the decline resumes, the next support for the S&P 500 index will move down to the 2021 high, which means that the benchmark index will fall another 10%.

Hartnett reiterated his view that investors should sell on the first Fed rate cut. He expects winners in the AI ​​sector to "struggle" in the second half of the year until earnings grow significantly.

He also highlighted opportunities in assets that “were previously tied to 5% yields and would find some respite at 3% to 4%,” including government bonds, real estate investment trusts, small-cap stocks and some distressed emerging markets such as Brazil.

The article is forwarded from: Jinshi Data