Market warning from BofA: Risk aversion may continue

Bank of America Chief Strategist Michael Hartnett stated that the risk aversion trend that has recently strengthened in the markets may continue until there are signs that the dollar has peaked. Hartnett stated that investors may stay away from riskier assets until there are signs that the dollar's rise is over.

Nervousness MAY CONTINUE IN THE MARKETS

In his investor note, Hartnett noted that if bond yields do not decline from their highest levels in more than 20 years, the uneasiness in the markets is likely to continue.

It was noted that the Bloomberg Dollar Index has risen approximately 3 percent since its bottom in September, as investors started to accumulate cash again by reducing their positions in risky assets.

DEVELOPMENTS THAT SUPPORT THE DOLLAR

It was stated that the rise of the dollar was accompanied by the inflationary pressures created by the tension originating from Iran, the expectation of further monetary tightening in the markets in the future, and the rising bond yields due to the strong increase in corporate profits.

Hartnett said recent price movements indicate that investors are reducing their use of leverage and risk levels.

BONDS BUYBACKS MAY BE ON THE AGENDA IN THE USA

Hartnett stated that the US administration may turn to more aggressive Treasury bond buybacks, especially if rising bond yields threaten the rapid growth in artificial intelligence investments in the US.

Stating that this possibility may gain importance especially before the US midterm elections planned to be held in November, Hartnett pointed out that developments in the bond market may have an impact on investors' risk appetite.

RISK WARNING FOR SMALL AND MEDIUM SCALE SHARES

Hartnett said that if small and medium-sized company stocks also participate in the sharp decline in the banking sector, the downside risks in the markets may reach a more worrying level.

According to Bank of America's evaluation, the course of the dollar and the movement in bond yields are among the important indicators in investors' reorientation towards risky assets.