Shannon Stapleton/Reuters
Sell stock rallies ahead of the likely recession shock for Main Street consumer sentiment in 2023, Bank of America said Friday.
Job losses next year will shock consumers, as inflation did in 2022, analysts predicted.
For now, the labor market still looks strong, with the addition of 263,000 jobs in November.
Steep job losses look set to sweep through the US next year, making it prudent for investors to sell stock rallies ahead of the major economic shift, according to Bank of America.
“Bears (like us) worry unemployment in ’23 will be as shocking to Main St consumer sentiment as inflation in ’22, especially consumers with a 2% savings ratio,” wrote Michael Hartnett, chief investment strategist at BofA Global Research. “[Selling] risk rallies from here,” he wrote in the firm’s Flow Show note published Friday.
Strength in the labor market was on display Friday with the November nonfarm payrolls report. The world’s largest economy added 263,000 jobs last month, outstripping economist expectations of 200,000. Wage growth continued to increase, marking a 5.1% rise over the previous year.
But Wall Street analysts widely expect a recession next year as the Fed works to cool inflation by jacking up borrowing rates to slow down economic activity.
Bank of America said it already sees signs of the labor market softening, with “small business jobs hard to fill (correlates with Fed funds) & peak in Atlanta Fed wage tracker,” it said. “But bulls need wage growth to decline sharply without big job losses.”
Still, stocks finished November trade higher as investors latched onto expectations the Fed could manage a soft landing for the economy even as rates climb. The S&P 500 and the Nasdaq Composite ended the month up by more than 5% each. For the year to date, the S&P 500 has lost 15% but has come off its bear-market lows.