So get this, Wall Street is finally coming around to our bearish outlook for U.S. stocks.
Old Wall equity strategists are now concerned about weak manufacturing data, commodity-price deflation, and Fed rate hikes further perpetuating an economic slowdown.
“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.
Meanwhile, UBS issued a "significant change" at the turn of the year, and cut equities from overweight to neutral. Goldman Sachs trimmed its S&P earnings forecast after noting that 2015 could be "the worst year for S&P 500 earnings since 2008."
A more incendiary warning shot came from RBS credit chief Andrew Roberts. In a note to clients, Roberts warned that it would be a "cataclysmic year" and led by a deflationary crisis. As a result, Roberts said:
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small... Equities and credit have become very dangerous, and we have hardly even begun to retrace the 'Goldlocks love-in' of the last two years."
RBS also accused the Fed of "playing with fire" by raising interest rates into a perfect storm of grim economic data. The report added, "There has already been severe monetary tightening in the US from the rising dollar," adding to the economic pain.
After calling the U.S. equity market top in July, Hedgeye has been telling subscribers for a while now that the "U.S. stock market is going to crash." And if our recession call (for Q2 or Q3 of 2016) plays out things could look a lot worse from here.
So where should investors park their money?
RBS now agrees with us. Credit chief Roberts told clients to buy, of all things, U.S. Treasuries anathema to the many hedge funds who have shorted U.S. bonds as a "reflation trade." That will unwind as the economy slows.
Hedgeye CEO Keith McCullough likes to say that he is "the most bullish guy on Wall Street on Long bonds," expressed through TLT.
Click below to watch mccullough lay out our long bond call.
We're happy to hear that Old Wall is coming around, albeit seven months after we warned about an equity-market downturn. Better late than never.