Bank of America strategist Hartnett issues a warning: if upcoming inflation data exceeds expectations, it will directly trigger a sell-off in risk assets. Historical data shows that over the past 100 years, once CPI surpasses 4%, the S&P 500 has on average declined by 4% over the following three months and by 7% over six months.
Moreover, market "sell signals" continue to strengthen, with massive IPOs like SpaceX draining record levels of liquidity, compounded by the risk of a hawkish shift from global central banks, leaving the tech bubble at an extremely vulnerable moment.
U.S. stocks are facing a severe stress test in June. Bank of America strategist Michael Hartnett warned that a cluster of high-impact macro events and a sharp withdrawal of market liquidity could drive global bond yields significantly higher, potentially bursting the current tech asset bubble.
According to Zhui Feng Trading Desk, Hartnett stated in his latest research report that the upcoming U.S. CPI data is the central catalyst for this "June storm." If the latest inflation data exceeds expectations, it will directly trigger a sell-off in risk assets. Historical data shows that when inflation breaches key alert levels, it often leads to a significant correction in U.S. benchmark stock indices in the following months.
Meanwhile,密集的 central bank decisions and statements worldwide are dominating market trends. In particular, the upcoming Federal Open Market Committee (FOMC) meeting, to be led by new Fed Chair Walsh, will determine the fate of U.S. equities and long-term bond yields based on its policy stance—any unexpected tightening signals could severely impact investors.
Amid extreme market bullish sentiment, Bank of America’s internal sentiment indicators have issued a strong “sell signal.” Combined with the unprecedented withdrawal of market liquidity from upcoming mega-tech IPOs, risk assets are currently exposed to extreme vulnerability.
Key inflation data is approaching, putting U.S. stocks at risk of a historic pullback.
The U.S. CPI data to be released on June 10 is the primary test facing the market.
Over the past three months, this data has risen an average of 0.6% month-over-month, and over the past six months, it has risen an average of 0.4%. If May’s CPI month-over-month growth exceeds 0.4% (currently market expectations are at 0.5%), it would mean U.S. CPI year-over-year growth surpasses 4% and could head toward 5% before the U.S. midterm elections. This trend would cause significant unease among risk assets.
Historical data shows that over the past 100 years, once CPI exceeded 4%, the S&P 500 index averaged a 4% decline over the following three months and a 7% decline over six months.
Another important inflation indicator is the intersection of unemployment rate and CPI.
In May, there is a “very low-probability but high-impact possibility” that the U.S. unemployment rate (consensus expectation: 4.3%) equals or falls below the inflation rate (consensus expectation: 4.2%), which would be the seventh such occurrence since 1960. In years when inflation has been near or above the unemployment rate—such as 1966, 1973, 2008, and 2021—the Federal Reserve has typically responded with interest rate hikes, and Wall Street’s memory of these years is often marked by pain.
In addition, the difference between the unemployment rate and CPI is highly correlated with the U.S. yield curve and is currently pointing to a near-term inversion, another signal negatively impacting risk assets.
Central banks around the world make coordinated decisions; bond yields may end their boom
"Both booms and bubbles ultimately end with bonds," Michael Hartnett reiterated in his report.
He warned that a series of events in June could push the UK 30-year government bond yield above 6%, the U.S. yield above 5%, and Japan’s yield above 4%. Given the current market is saturated with bullish positions and optimistic earnings expectations, a sharp rise in yields would undoubtedly be negative for risk assets.
Global central banks are currently clearly lagging behind the inflation curve. Of 68 global central banks, 46 currently have inflation levels exceeding the absolute median of their target or target range. Against this backdrop, the European Central Bank (ECB) has a 98% probability of raising rates by 25 basis points, while the Bank of Japan (BoJ) also faces an 83% probability of a 25-basis-point hike, urgently needed to prevent the yen from falling below the "Maginot Line" of 160 to the US dollar.
The FOMC meeting on June 17, led by Walsh, was considered one of the two most important events of the month.
The market currently faces a policy dilemma: if the Fed is too dovish, long-term yields will head toward 6%; if it is too hawkish, the S&P 500 risks a pullback toward the 7,000 level; while a "Goldilocks"-style moderate stance could push the NYSE Composite Index (NYA) above its historical high of 24,000.
As Wash noted in 2024, central banks around the world seem complacent about inflation approaching 3%, and the 2% inflation target is no longer taken seriously—this compromise is extremely dangerous.
Wealth effect fuels inflation; extreme sentiment triggers "sell signal"
From a macroeconomic perspective, the United States is experiencing a K-shaped recovery driven by a wealth and stock market boom cycle.
U.S. households have added $6 trillion in stock wealth year-to-date, and this "wealth-price spiral" has directly intensified inflationary pressures. Despite economic prosperity, voters' perceptions are mixed, and Trump's support on inflation is now below Biden's lowest level.
In terms of capital flows, investors have recently shown an extreme tendency to chase tech bubbles. Last week’s data showed $122 billion flowing into cash, $39 billion into bonds (a record high), and $23.1 billion into equities. Meanwhile, cryptocurrency saw $2 billion in outflows and gold saw $3.1 billion in outflows, indicating that investors are selling off other assets to pursue technology and semiconductor sectors.
Extreme capital flows have pushed the U.S. bank Bull/Bear indicator from 8.5 to 8.7, strengthening the "sell signal" triggered two weeks ago.
Historical data shows that of the 17 "sell signals" since 2002, global stock markets have on average declined by 2% to 3% in the following 2 to 3 months, with maximum drawdowns reaching 15% to 20%. Additionally, global breadth indicators show that 48% of global stock markets are currently overbought.
Massive IPOs drain liquidity, while non-economic events intensify market volatility.
In addition to macroeconomic data, the largest non-economic event risk in June comes from substantial supply in the capital markets.
SpaceX's initial public offering (IPO) will begin trading next Friday, and together with the offerings from Anthropic and OpenAI, as well as the expiration of related lock-up periods, will withdraw record levels of liquidity from the market. This magnitude of liquidity contraction could wield even greater power as a market catalyst than the decisions of central banks worldwide.
The impact of historical mega IPOs on the market has been mixed.
Although the IPOs of Alibaba and ICBC served as market catalysts, the listings of Visa and AIA marked a market peak, with both the S&P 500 and Hang Seng Index experiencing significant declines in the 9 to 12 months following these IPOs.
Hartnett believes that this political shift is the primary reason why Latin American bond yields and spreads are currently at historic lows, falling to their lowest level since November 2007 at 217 basis points—a similar trend toward political rightward movement is also evident in Europe.
For investors, this means a profound and substantive reassessment of global economic policy preferences is currently underway.