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 11 to 13. The Flow Show Trading the ISM Inflection Scores on the Doors: crypto 18.6%, oil 9.7%, stocks 4.8%, commodities 3.7%, US$ 2.6%, cash 0.7%, HY bonds 0.3%, IG bonds -1.9%, gold -2.5%, gov bonds -3.8% YTD. Tale of the Tape: just a few weeks away from 4-year anniversary of COVID lockdown, 10-year yields of 0.3%, SPX of 2200, unemployment rate of 15%…and just look at us now! The Price is Right I: it only took 34 years but…Japan Nikkei @ new all-time high; JGB yields back in Dec'89 were bubble-peaking 5.7% vs 0.7% today; but both Nikkei highs aided & abetted by currency depreciation…JPY 144 back then vs 150 today. The Price is Right II: our “Monopolistic Bull”…contribution to SPX +25% gain past 12 months of "Magnificent 7" = >60%, contribution of top 10 stocks (add WMT+COST+ELI) = >70%, contribution of top 20 stocks = >80%. The Biggest Picture: all cyclical assets now trading inflection point in ISM; based on historical relationship to ISM and current valuations, best trades for “long producer, short consumer” in '24 are commodities, mercantilist stock indices (KOSPI/OMX/DAX) & EM ex-China, cyclical assets not yet discounting an ISM jump to 55-60 (Table 1). Table 1: Trading the ISM Inflection Point Cyclicals with their implied discount of future ISM (currently 49) Cyclical asset Implied ISM Implied ISM range Japan (NKY) 62 60-65 Semiconductors (SOX) 62 60-65 Homebuilders (XHB) 60 55-60 Industrials (S5INDU) 55 50-55 Germany (DAX) 54 50-55 EM ex-China (MXCXBRV) 54 50-55 Korea (KOSPI) 53 50-55 Inventory-Shipment ratio 53 50-55 Sweden (OMX) 53 50-55 Materials (S5MATR) 51 45-50 Commodities (MLCXTR) 51 45-50 Industrial metals (MLCXIMTR) 48 45-50 Source: BofA Global Investment Strategy, Bloomberg BofA GLOBAL RESEARCH More on page 2… 22 February 2024 Investment Strategy Global Michael Hartnett Investment Strategist BofAS +1 646 855 1508 michael.hartnett@bofa.com Elyas Galou >> Investment Strategist BofA...
