That '70s Show: Wall Street's Most Accurate Analyst Sees A '70s-Style Oil Spike And Tech Wreck. How We're Positioned For It
David Pinsen 4 years ago
CommoditiesMarketsAnalyst RatingsTrading Ideas
The 1970s Bear Market Analog On Saturday, ZeroHedge reported that Wall Street's most accurate analyst, Bank of America's chief investment strategist Michael Hartnett, sees a strong parallel between our current market environment and the bear market that occurred during the 1970s:
The 1970s Bear Market Analog
On Saturday, ZeroHedge reported that Wall Street's most accurate analyst, Bank of America's chief investment strategist Michael Hartnett, sees a strong parallel between our current market environment and the bear market that occurred during the 1970s:
Hartnett next echoes what we said yesterday in our discussion of the BOE's shocking decision, which we said confirms the worst stagflationary case for the economy. According to the BofA strategist, the BoE projected UK CPI >10% by Oct'22, cut '23 GDP forecast 150bps to -0.25%; in other words, 10% inflation, 0% growth the living definition of stagflation.
It's why to Hartnett, the correct relative playbook is 1973/74 and it shows that cash and commodities beat bonds & stocks (esp consumer & tech; note Big Tech starting to ape Nifty 50 crash).
Take a look at the chart above and note that the best performing sector in 1973/74 was oil, and the second-worst was tech (at the time, the Arab oil embargo in the wake of the Yom Kippur War played a similar role in limiting supply that Western sanctions on Russia have in the wake of the Ukraine War).
Positioned For An Early '70s Redux
As I've mentioned before, Portfolio Armor's system doesn't consider the macro picture when selecting its top names. Instead, it gauges underlying securities and options market sentiment to estimate which names are likely to perform the best over the next six months. Nevertheless, that bottoms-up approach often reflects a macro picture, and the picture our system painted with Friday's top ten names bears a striking resemblance to Hartnett's '73-'74 analog:
Screen capture via Portfolio Armor on 5/6/2022.
Recall that oil was the top performing sector during the '70s bear market. On Friday, four of our top ten names were oil names: ProShares Ultra Bloomberg Crude Oil (NYSE:UCO), United States Brent Oil Fund LP (NYSE:USO), United States Oil Fund LP (NYSE:USO), and VanEck Vectors Oil Services (NYSE:OIH). Three of our other long names were in energy, ProShares Ultra Bloomberg Natural Gas (NYSE:BOIL), United States Natural Gas Fund LP (NYSE:UNG), and Peabody Energy Corp. (NYSE:BTU); our eighth long name was in fertilizer, The Mosaic Co. (NYSE:MOS); and our top ten was rounded out with two short names, ProShares Short Russell2000 (NYSE: