(Bloomberg) - Investors should buy consumer stocks in a way to play “policy panic” as the US strives to prevent a recession, according to Bank of America’s Michael Hartnett.
President Donald Trump is likely to push for moves that will shield the US consumer from an economic downturn and support his popularity among voters once the Middle East conflict is resolved, the strategist said in a client note.
“We assume policy panic to avoid recession,” Hartnett said, as Trump pursues a “post-war pivot to address affordability & slump in approval ratings.” He pointed to potential policy moves around universal basic income to protect workers.
November midterm elections that will determine control of Congress are pressuring Trump to counter unhappiness over the rising cost of living, made worse by the oil spike from the Iran war. Polls have shown voters souring on the president’s economic agenda as high costs for housing, groceries and utilities squeeze pocketbooks.
Hartnett highlighted US consumer stocks as his “fave contrarian long,” given concerns around inflation and slower economic growth. His call comes as the sector trades near lows relative to the S&P 500 index that match times of market crisis, like the Covid pandemic and the global financial crisis.
He also recommended long-yield curve steepeners, which target gains from increased spreads between short-term and long-term interest rates, as an investment strategy that can deal with the post-war policy response.
Investor concern over the outlook for equity markets showed up in the latest fund flows data, highlighted by the Bank of America strategists. Outflows from US stock funds hit the highest in 13 weeks in the period ended March 25, at $23.6 billion, they said, citing EPFR data.
Elsewhere, European stocks recorded their largest outflow since April, at $3.1 billion.
By Rose Henderson
With assistance from Michael Msika
