BofA: A 'Goldilocks' Economy Is Bad News For Stocks


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Bank of America believes the S&P 500 is heading for 1,450 by year-end.  But in the shorter term, stocks could be in for a pretty bumpy ride.In a new note, BofA’s Chief Global Equity Strategist Michael Hartnett argues that the current lukewarm economy is bad news for stocks.

But “Bad Goldilocks” constrains near-term upside
The RIC’s short-term view remains “Bad Goldilocks”. The 2Q backdrop is neither “cold” enough to provoke the fresh bout of Quantitative Easing that many risk assets so cravenly desire, nor “hot” enough to provoke losses in fixed income markets and inspire a rotation out of bonds and into equities and commodities. Our advice to individual investors in the short term is twofold: 1) Maintain overweight positions in our favoured themes of Growth, Yield and Quality; 2) Wait for a better entry point into markets before raising allocations to equities and commodities.

The Goldilocks reference is derived from the fairy tale Goldilocks and the Three Bears, in which Goldilocks chooses from sets of three items, ignoring the extremes and picking the one in the middle, or the one that is “just right”.

For stocks, “just right” is “just wrong.”

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