Hartnett's Scoreboard Signals Risk-Off Event Looming Amid Market Shift

BofA's Michael Hartnett has released his weekly scoreboard, providing insights into the current market trends. According to the scoreboard, oil has been a significant contributor to market returns, with global and US equities delivering double-digit gains year-to-date. In contrast, government bonds have underperformed, down 4% this year, while investment-grade bonds are also underwater.

Hartnett notes that even Bitcoin, which was previously taken down earlier in the year, has largely recovered its losses. The data suggests that owning assets benefiting from nominal growth has been rewarded, while those assuming duration would provide protection during volatility have been punished.

The framework for a potential risk-off event is becoming more interesting, Hartnett says. Two key events could trigger this cascade: a US-Iran capitulation leading to lower oil prices and a midterm election where Main Street prioritizes affordability over higher asset prices. This setup was initially clean at the end of August but has become more complex after one Fed hike and 60bp higher in 10-year yields.