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Earlie we brought to you Bank of America’s call that the “Great Rotation” from bonds into equities was taking place.In the note, analyst Michael Hartnett describes would could cause a bigger market melt-up from where we are right now.
What could cause a “melt-up”? Retail inflows into equity markets have started to pick up (more inflows are expected to be reported in the weekly numbers) and individual investors are still lightly positioned in equities relative to history. Further, both the EPS and GDP “bars” are low in early 2013. The three-month suspension of the US debt ceiling renders DC uneventful in the near term. And it is too early to argue the policy is not working to stimulate growth. Q2 is crucial in this respect.
An LBO boom would be a good fundamental reason for a re-rating of stock markets. The environment is ripe for a pick-up in deal flow, with Dell as the latest target of speculation. The global demand for yield has driven debt costs to ever- lower levels, and the cost of capital for buyout firms has fallen to some of the cheapest levels in history. Banks have also repaired their balance sheets and are once again in a position to provide deal financing.
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