BofA’s Hartnett Says Higher-for-Longer Rates Set to Hurt Stocks

The rising threat of interest rates staying higher-for-longer is likely to dent prospects of a soft landing for the US economy and drive a selloff in stocks over the next two months, according to Bank of America Corp. strategists.

The consensus probability of a hard landing is “around 20%,” but oil, dollar and bond yields remaining elevated, as well as tighter financial conditions, “remain the September-October risk,” strategists led by Michael Hartnett said in a note dated Sept. 7.

Hartnett and his team see a risk that recession and rising unemployment cause higher — rather than lower — long-term government bond yields, as markets discount fiscal policy panic and politicians spend to avert social and political unrest. The strategist correctly predicted the US stock slump last year, and has remained bearish in 2023 even as the S&P 500 rallied.

“Yields then rise to punishing levels,” causing a “long and hard landing,” Hartnett added. “We use any rallies in risk assets in coming months to get defensive” and position for a hard landing.

Equity Yield Is Unattractive Relative to Bonds