If you fear that interest-rate hikes by the Federal Reserve could push the economy into recession, you’re not alone. Bank of America (BAC) has the same concern.
In the “next six months, rates shock morphs into recession shock,” BofA strategists, led by Michael Hartnett, wrote in a commentary.
BofA predicts the Fed will raise rates by 25 basis points at each of its remaining seven meetings this year, pushing the federal funds target range to 1.75% to 2%. This could upend the economy, the strategists said. “Recession risks [are] rising.”
And that’s not good news for stocks, they said. “We remain bearish [on] tech/stocks/credit.” Meanwhile, the strategists said they’re bullish on “volatility, cash and defensive assets.”
The Fed’s presumed rate hikes will come to fight inflation, of course. Consumer prices soared 7.5% in the 12 months through January, an almost 40-year high.
“High and rising inflation has justly become the key preoccupation of investors,” J.P. Morgan strategists, led by Dubravko Lakos-Bujas, wrote in a commentary.
“It is affecting consumer spending, [the] business outlook, politics and, most importantly, the direction of monetary policy. While we expect the cyclical recovery to continue, … we acknowledge that the path of future inflation is uncertain.”
The J.P. Morgan analysts cited stocks that will likely outperform and underperform the market in an inflationary environment.
The outperformers include Bank Of America, Boeing (BA) and Exxon Mobil (XOM). The underperformers include Microsoft (MSFT), pharmaceutical company Moderna (MRNA), and Walmart (WMT).
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