BofA warns of new rising interest rates

By Jonathan Ponciano

At a new all-time high, two key US stocks closed higher on Friday, August 13, 2021. 

Still, Bank of America analysts warn in their analysis that the record has made the market particularly vulnerable to rising interest rates, which could lead to a "painful" correction, even this year.

More specifically, after closing a new record on Thursday, the Dow Jones industrial average rose 15 points on Friday and finished at 35,515 points. Disney "driving" strengthened by 1%, thanks to the impressive profits from its theme parks during the last quarter.

The S&P 500, which also closed at a new high on Thursday, rose 0.2% and closed the last session of the week at a record high of 4,468 points, as several shares of the index rose after the announcement of substantial gains, such as Tyson Foods that "climbed" 2.3% higher and eBay that recorded a "jump" 7.5%.

However, Bank of America analyst Savita Subramanian warns that the S&P, after three consecutive records set only this week, has climbed to "statistically expensive" levels based on almost every indicator monitored by its analysis team.

"Risks are pregnant," Subramanian analysts said in a report released Friday, noting that inflation and a slowdown in earnings growth expected later this year suggest a "painful downside risk" if interest rates move even moderately higher.

They point out that Federal Reserve officials have begun to "propose a tightening" (monetary policy stance), which means rising interest rates to tackle rising inflation.

Bank of America predicts Fed talks on tightening the Fed's monetary policy could begin as early as September and help boost 10-year US government bond yields, which tend to increase as interest rates rise, at 1.9% by the end of the year.

A move that analysts of the investment bank estimate will cause a "dip" of 15% in the S&P index as investors sell shares to invest in risk-free bonds.

A possible sign that the market is overbought is that several stocks "sank" this week, falling from their historic high amid warnings of growth slowdowns, overvaluations, and impending challenges facing the chain's supply.

For example, Wishes' e-commerce company plunged 20% on Friday after warning that the growth slowdown would hit its revenues throughout the year. At the same time, the title of Moderna collapsed by almost 20%.

One of the coronavirus vaccines was developed after Bank of America analysts described the recent rise in the stock as "unrealistic" based on the biotech company's financial figures.

At the same time, semiconductor manufacturers LAM Research and Micron Technology fell 9% to 15% compared to last Friday, amid concerns that computer chip prices will drop later this year due to a lack of supplies.

The previous

It is worth noting that the S&P 500 index collapsed by 15% in the fourth quarter of 2018 after the Fed began to raise interest rates. "If Fed officials move too fast, it will probably be a problem for the markets, as history has shown time and time again," said Tome Essaye, author of

S&P collapsed 15% in the fourth quarter of 2018 after the Fed began to raise interest rates. "If Fed officials move too soon, this will be a problem for the markets, as history has proven over and over again," Tom Essaye, an analyst at Sevens Reports, wrote in a note Thursday.

The Fed moves

When markets collapsed in March 2020 amid uncertainty over the coronavirus pandemic, Federal Reserve Chairman Jerome Powell vowed to use "the full range of Federal Reserve tools to support the US economy." until "substantial further progress" is made towards full economic recovery.

Since then, the Fed has kept interest rates at an all-time low, injecting about $ 120 billion into the economy monthly through bond purchases, fueling almost frantic rally inequities.

 The S&P 500 jumped almost 94% from its low during the pandemic.

 At the same time, Dow Jones and Nasdaq rose 85% and 115, respectively.

However, this year, fears that massive government spending could lead to troubled inflation have sparked volatility. As a result, some Fed officials have been forced to reconsider the Fed's monetary policy in recent weeks.

Market participants eagerly await the Fed's annual conference at Jackson Hole Resort on August 28-29. "We expect Fed Chairman Jerome Powell at Jackson Hole to pave the way for a tightening of monetary policy, while details of the Fed change will be made public (at the next Fed meeting) on ​​September 22".

He said in a note released Friday by Vital Knowledge Media founder Adam Crisafulli.

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