Bank of America: "Golden-haired Girl" trend is forming, bringing bright prospects to cyclical investors
Bank of America stated that the decline in inflation and economic slowdown have created a favorable investment environment for interest rate-sensitive cyclical stocks. The bank predicts that inflation will approach the Federal Reserve's 2% target, and expects the Fed to start a significant rate cut in September. In addition, corporate profits are expanding, and economic growth will be supported by the Fed. These factors will drive stocks in non-essential consumer goods, materials, and financial industries to rise
According to the Wise Finance APP, Bank of America stated that inflation is trending towards the Federal Reserve's target, coupled with signs of economic slowdown in the United States, creating an ideal environment for rate-sensitive cyclical stocks.
The CPI data released last week for June showed that the overall inflation rate slowed down both month-on-month and year-on-year faster than expected. In a report on Sunday, Bank of America stated that this was the largest misreporting in the bank's data history since 1998.
Ohsung Kwon, stock and quant strategist at Bank of America, said: "This confirms our view that we are on the path to the 'golden-haired girl', with macroeconomic and inflation recovery in sync." After more than two years of divergence.
Kwon stated that with tamed inflation following the increase in benchmark interest rates from zero to 5.25%-5.5% in 2022 and 2023, policymakers can focus on economic growth.
"The situation is shifting towards rate-sensitive cyclical indicators: rate pressure is easing, economic growth will eventually receive support from the Federal Reserve, and most importantly, as 'other 493' (companies outside of the seven tech giants in the S&P 500) emerge from profit decline, corporate earnings are expanding."
The CPI report brings the inflation rate closer to the Federal Reserve's 2% target, with investors expecting the Fed to start significant rate cuts as early as September. Bank of America stated that the world's largest economy is slowing down but "not rolling over," and this view may change with the release of data.
Bank of America did not specifically point out any cyclical stocks. Industries typically considered highly correlated with economic cycles include non-essential consumer goods, materials, and finance. These sectors of the S&P 500 index have risen since the beginning of the year but lag behind the overall index's gains