Wall Street pays US-China tensions over Hong Kong. Bank of America talks about ‘fake markets’

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Wall Street, as well as the rest of global equities, also faces fears of an escalation between China and the United States after, at the annual meeting of the General Assembly of the People – the Chinese Parliament -, the Chinese Premier Li Keqiang announced a new national security law, which confirms greater control by Beijing over Hong Kong.

The Dow Jones lost around 100 points (-0.40%), at 24,376 points; the Nasdaq reduces losses after half an hour of trading, nervously oscillating around 9,288 points. The S&P 500 drops 6 points (-0.21%), to 2,942 points. If approved, the new rules proposed by China – according to what has been learned – “would prohibit secession, foreign interference, terrorism and all sedition activities aimed at overthrowing the central government”.

Immediate reaction from US President Donald Trump, who said he was ready to intervene in favor of the city state, should the law be imposed.

BEAR MARKET RALLY? THE NOTE ON BOFA’S ‘FAKE MARKETS’

Focus on the note just published by Mike Hartnett, chief strategist for investments of Bank of America, who speaks of “fake markets” due to the monetary bazookas launched by the various central banks:

“Government and corporate bond prices are now set by central banks … why should one think that stock prices reflect reality in a rational way?” Hartnett asked.

The strategist recalled that over the past eight weeks, central banks have launched $ 4 trillion asset purchase programs, specifically making $ 2.4 billion worth of purchases per hour, and that the global stock market capitalization rose $ 15 trillion. ”

However, with 2,215 shares out of a total of 3,042 global shares that remain in a bear market situation, and therefore travel at a value more than -20% lower than their historical highs, Hartnett stressed that the recent Wall Street rally must be considered “as part of the $ 30 trillion crash that characterized the months of February and March”.

The strong recovery, he explained further, was also fueled by the buyings that focused on the four titles of the titans belonging to the acronym FAAMG (Facebook, Amazon, Apple, Microsoft, Google), whose capitalization now exceeds that of the whole euro area stock market.

Are we therefore in the presence of a bear market rally?

Hartnett recalled that, on average, the bear market rallies of 1929, 1938 and 1974 were characterized by a 61% recovery of the indices from their respective minimums tested, following a decrease, on average, of 49%.

This means that the S&P 500 is expected to end 2020 at 3,180 points, compared to 2,948.51 at yesterday’s close.

Overall, Harnett calls Bank of America’s strategy “tactically bullish” and “structurally bearish” and accuses central banks of creating an “immoral gamble” that will force investors to continue buying, banks to lend and zombie companies. to issue debt in 2020.





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