Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. >> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 13 to 15. The Flow Show “Events, dear boy, events” Scores on the Doors: US dollar 1.1%, oil 0.8%, crypto 0.5%, commodities 0.0%, cash 0.0%, HY bonds -1.0%, gold -1.1% , IG bonds -1.2%, gov bonds -1.4%, stocks -1.7% YTD. Tale of the Tape: Fed and yields dictating credit and stocks; lower inflation, lower rates = +ve risk assets, higher unemployment, lower rates = -ve; given upcoming big bond supply to refinance govt & corp sectors (UST $1.8tn in '23, US IG $0.8tn, 10% US HY and loans mature next 2 years), critical Fed eases H1 to avert corporates cutting jobs and capex H2. The Price is Right: ’23 large-cap growth outperformance of value by 33ppt (2nd biggest beat since ’79 – Chart 3), small-cap value (by 30ppt) and growth stocks (24ppt) driven by higher yields, aversion to leverage; and yield collapse from 5% to 4% past 10 weeks thus bullish leverage & breadth; just 2% expect lower rates, 18% lower yields in ’24 says BofA Dec Fund Manager Survey; big risk is Q4 bonds, bullion, breadth rally reverses early doors ’24. The Biggest Picture: Dec payroll: NFP >220k & AHE >0.3% AHE = GT10 to 4¼%...NFP <140k & AHE <0.1% = GT10 to 3¾%; note disconnect of contracting ISM & resilient “no landing” payrolls (Chart 2), strong stocks and decelerating job openings (Chart 4). Chart 2: ISM is contracting, NFP is expanding…rare US nonfarm payrolls vs ISM manufacturing PMI Source: BofA Global Investment Strategy, Bloomberg BofA GLOBAL RESEARCH More on page 2… +199k47.420304050607080-1000-800-600-400-20002004006008001000'60'65'70'75'80'85'90'95'00'05'10'15'20'25US nonfarm payrolls (thousands)ISM Mfg PMI (RHS)04 January 2024 Investment Strategy Global Michael Hartnett Investment Strategist BofAS +1 646 855 1508 michael.hartnett@bofa.com Elyas Galou >> Investment Strategist BofASE (France) +33 1 8770 0087 elyas.galou@bofa.com Anya Shelekhin Investment Strategist BofAS +1 646 855 3753 anya.shelekhin@bofa.com Myung-Jee Jung Inv...
