Investors see Fed policy mistake driving hard landing, BofA says

(Bloomberg) -- Investors are concerned that too much tightening from the Federal Reserve could trigger a hard economic landing next year, as the central bank continues its most aggressive rate hike campaign since the 1980s, according to strategists at Bank of America Corp.

That’s marked by a renewed selloff in equities, which is unlikely to end as long as the labor market remains hot, strategists led by Michael Hartnett wrote in a note. They said monetary policy could trigger a reversal in what they see as an “abnormally” low US unemployment rate. BofA also expects a credit event among non-bank lenders — so-called shadow banks — to mark the ultimate low point in stocks in 2023.

US stocks are set for a second week of losses as the Fed reiterated its hawkish stance after raising interest rates 50 basis points on Wednesday. The S&P 500 is on track for its worst annual performance since the global financial crisis, over soaring inflation, higher interest rates and ensuing global economic headwinds. Still, signs of resilient corporate performance and hopes of easing inflation have propelled stocks to rally in the fourth quarter.

Global equity funds had $18 billion of inflows in the week through Dec. 14, according to a note from the bank citing EPFR Global data, before more hawkish-than-expected comments from central banks triggered a selloff in stocks. Investors poured cash into US stocks for the first time in four weeks at $25 billion, while US value funds had a record amount of inflows at $14 billion. European shares had outflows for the 44th straight week at $4 billion.