Recession Shock for Wall Street Has Begun, Bank of America Warns

Analysts at Bank of America have warned that a 'recession shock' has begun for markets after data showed Wall Street stocks suffered the worst half-year losses in more than 50 years. '

According to BofA Chief Investment Strategist Michael Hartnett, the bank's 'bull and bear indicator' remains at maximum bearish for a straight third week, Bloomberg reported.

Fed Rate Hikes

He added that even as chances of more rate hikes by the US central bank remain in tact, there is no clear indication on when the sky-high inflation will peak.

Bank of America
Bank of America Wikmedia Commons

According to BofA estimates, a whopping $5.8 billion exited global stock funds in the week ending June 29. The sell-off is the result of hawkish central bank action worldwide amid runaway inflation, which is stoking fears of an imminent recession in the world's largest economy and elsewhere.

In the last six months, the benchmark S&P 500 stock market index lost 20.6 percent, which is the steepest half-yearly loss for the US stocks since 1970. The index also breached the bear market territory, having lost more than 21 percent from the January high.

The Dow Jones Industrial Average dropped more than 15 percent in the first half of 2022, which is its biggest plunge since 1962. For the quarter, the S&P 500 plunged more than 16 percent, which is its biggest drop since March 2020. While the Dow lost 11 percent in the second quarter, the Nasdaq plunged losing 22.4 percent, the steepest quarterly fall since 2008.

Big Inventories Problem

Another major analyst, Ark Invest's Cathie Wood, also flagged a looming recession. "We think we are in a recession ... We think a big problem out there is inventories — the increase of which I've never seen this large in my career. I've been around for 45 years," she said in a CNBC interview.

Meanwhile, the Atlanta Federal Reserve's GDP tracker showed that the US economy is in a likely recession.

The Federal Reserve
The Federal Reserve YouTube Grab

"GDPNow has a strong track record, and the closer we get to July 28th's release [of the initial Q2 GDP estimate] the more accurate it becomes," Nicholas Colas, co-founder of DataTrek Research, said, according to CNBC.

According to the Atlanta Fed's GDPNow measure, which tracks economic data in real time, the second-quarter output likely contracted 1 percent. As the first-quarter GDP shrinkage is calculated at 1.6 percent, the economy is already in a technical recession, the report says.