While the afterglow of exuberance remains in stocks, BofAML's Michael Hartnett is less than impressed by what comes next...
As Fed hikes rates for the first time in 3,460 days, officially ending the era of extreme, abnormal monetary policy in the form of QE and zero rates, what do we see?
Risk assets were very oversold going into the Fed hike...they now bounce.
But the Fed hike follows significant tightening of liquidity; negative blowback is more and more visible, e.g. credit crunch causing less stock buybacks.
And global banks being at all-time relative lows indicate Fed tightening into deflationary expansion, as does the narrow breadth of economic growth, wealth and asset price gains.
Rising rates and falling profits are not a good combination for asset prices, so we will turn sellers of risk in early 2016.
that is grim. will be interesting to see what happens with XLE on that news. it might actually rise on the logic that the S&P oil companies will be the more likely to survive and get to pick up cheap distressed assets as the smaller entities fold.
not gonna trade it but curious to see how it plays out...