BofA warns US policy is fueling price bubble on Wall Street



The strategists of Bank of America Corp. have warned that the “extreme rally” on Wall Street that has pushed stocks to record highs, fueled by a strong stimulus in US policy, is forming an asset price bubble.

“DC’s political bubble is fueling Wall St’s asset price bubble,” strategists led by Michael Hartnett wrote in a note Friday. “When those who want to stay rich start acting like those who want to get rich, it suggests a late stage speculative move. “

Strategists predict a market correction and positioning to peak in the first quarter, with the BofA Bull & Bear indicator approaching a “sell signal”.

Soaring market prices as investors boost inflation-linked transactions will cause “core inflation” to rise, risking a fit of temper, tighter financial conditions and volatility events, strategists have warned. . They highlighted past bubbles, notably that of the dot-com era and the real estate market in 2007-2008.

Risky assets rallying to vaccine prospects are getting a new boost this year thanks to bets that a victory for U.S. Democrats in the Senate will spur further fiscal stimulus, adding to the Federal Reserve’s largesse. The S&P 500 Index has jumped more than 70% since its low last March, while the Nasdaq 100 has nearly doubled and Bitcoin has climbed above US $ 30,000.

Central bank balance sheets swelled in 2020, reaching a record size for the Fed and the European Central Bank. BofA expects the Fed’s balance sheet to reach 42% of U.S. gross domestic product this year, while predicting that the country’s budget deficit will reach 33% of GDP.


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