BofA’s high 10 trades for 2023

Subsequent 12 months the U.S. will expertise a light recession with the fed funds price peaking at 5.25% and the Fed finally slicing in December, in keeping with BofA strategists.

Shares will transfer sideways and the S&P 500 (SP500) (NYSEARCA:SPY) will finish 2023 at 4,000, Michael Hartnett and crew wrote in a word.

“We keep bearish danger property in H1, seemingly flip bullish H2,” Hartnett mentioned.

“We’re lengthy US authorities bonds in H1” with “onerous touchdown & credit score occasion dangers underpriced,” Hartnett added, sustaining optimum S&P entry factors of “nibble” at 3,600, “chew” and three,300 and “gorge” at 3,000.

Listed here are their high 10 trades for 2023:

1. Lengthy 30-year Treasury (US30Y) (TBT) (TLT) “on recession, unemployment, Fed cuts late’23, historical past (US Treasury returns have by no means fallen for 3 consecutive years).”
2. Yield curve steepeners “as US yield curve all the time steepens as recession begins and markets anticipate Fed flipping from hikes to cuts.”
3. Quick U.S. greenback (USDOLLAR) (DXY) (UDN), lengthy rising markets property (EEM) (SPEM) (FEM), lengthy EM distressed bonds lengthy Korean gained on China reopening, lengthy Mexican peso on “nearshoring.”
4. Lengthy China shares (MCHI) (FXI) as “COVID reopening was v bullish for US/EAFE shares, China has excessive ‘extra financial savings’ and China shares stay v contrarian lengthy commerce.”
5. Lengthy gold (XAUUSD) (GLD) (IAU), lengthy copper (HG1:COM) (COPX) on “US$ peak, China reopening, steel stock shortages, vitality transition acceleration, want in 2020s for inflation hedges.”
6. Barbell credit score with “lengthy credit score too consensus in ’23, we barbell lengthy IG tech bonds (>5% yield + sturdy stability sheets) with distressed HY debt in Asia (17% yield).”
7. Lengthy international industrials (XLI) and small caps (IWM) on “secular management shift in 2020s from deflation to inflation property, pushed by globalization to localization, financial to fiscal extra, inequality to inclusion and so forth simply starting; capex set to be new macro bull story.”
8. Quick U.S. tech (XLK) (XLC). The “previous management, nonetheless over-owned, period of QE is now not, period of globalization now not, plus peak penetration and regulation dangers.”
9. Quick non-public fairness (PSP) with “redemption dangers given shadow banking exposures to housing & credit score dangers.”
10. Lengthy EU banks, brief Canadian, Australian, New Zealand and Swedish banks. “EU fiscal stimulus to wean Eurozone off Russian vitality dependence, Chinese language export dependence, US navy dependence vs actual property market busts in Canada/Australia/NZ/Sweden.”

See the large catalysts for shares this week.