Sell hubris and buy humiliation is an attractive trade for 2023, according to BofA.
As a percentage of the MSCI Word Index ( NYSEARCA: URTH ), U.S. equities stand at an all-time high of 66%, strategist Michael Hartnett wrote in his weekly Flow Show note.
Tesla's ( TSLA ) market cap is as big as "the entire European banking sector" at about $750B, Harnett noted.
A "regime change from Globalization to Isolationism" gives rise to emerging market disinvestment and foreign exchange devaluation in "weak links," he said.
On the currency front, "Sri Lanka -45%, Argy -30%, Turkey -29%, Pakistan -25%, Hungary -24%, Egypt -19% YTD all despite big rates hikes."
The trade of 2023 is to sell U.S. hubris and buy EM humiliation, Hartnett said.
At the present, talk on Wall Street is that stocks ( SPY ) ( QQQ ) ( DIA ) ( IWM ) are trading bad-news-is-good-news and bonds ( TBT ) ( TLT ) ( SHY ) ( LQD ) ( JNK ) are trading bad-news-is-bad-news, with stocks trading the Fed and bonds trading collateral.
"If so, Oct bear risk rally continues with 'Goldilocks' payroll, but BoJ can’t prevent new high in dollar-yen, BoE QE can’t prevent new highs in UK gilt yields (which means) risk assets to new lows in Oct," Hartnett said.
See why risk-off ETF flows are raising eyebrows .
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With Tesla as big as all European banks, it's time to trade hubris, BofA says