Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- Several key market thresholds could trigger policy responses as geopolitical tensions and tighter financial conditions ripple through global markets, according to Bank of America strategists led by Michael Hartnett.
In their latest Flow Show note, the strategists argue that investors should watch a specific set of levels across commodities, currencies, rates and equities that could prompt intervention from policymakers.
“We suggest fading oil >$100/bbl, US$ (DXY) >100, 30-year UST yield >5%, SPX <6.6k, levels set to provoke war/oil/Fed/tariff policy response to short-circuit Main St risks,” they wrote in a Thursday note.
Rising oil prices are tightening financial conditions and have already reduced expectations for Federal Reserve rate cuts. “Oil tightening financial conditions & Fed cut pricing out (June was 100% probability, now 25%),” the note said, adding that the bigger risk for equities may come from earnings rather than inflation.
Hartnett’s team also pointed to parallels with the 2007–2008 period, when a surge in oil prices coincided with tightening credit conditions before the global financial crisis. They warned that a prolonged conflict combined with stress in shadow banking could create a stagflation-like environment for markets.
Still, Hartnett’s team said positioning still does not show the type of capitulation that typically marks a market bottom.
Strategists said the BofA Bull & Bear Indicator has likely peaked and risk-off flows are becoming more visible, particularly in U.S. high-yield bonds, emerging-market debt and financial stocks. But broader positioning still does not reflect the kind of “bear panic” that would usually attract contrarian buyers, they noted.
The indicator has slipped to 8.7 from 9.2, remaining in sell territory and far from the sub-2 levels that historically coincided with major market lows. Other sentiment signals — such as heavy equity and high-yield fund outflows or a sharp rise in fund-manager cash levels — have not yet reached the extremes typically seen at durable turning points, the team added.
As a result, the strategists said positioning appears "still more bullish than bearish," reflecting a market consensus that the conflict will be relatively short-lived and that policymakers would step in if financial conditions deteriorate significantly.
Meanwhile, flows are starting to show signs of risk aversion. In the week through March 11, investors added $13.2 billion to equities and $3.4 billion to bonds, while cash funds saw $800 million of inflows. Gold funds recorded $900 million of outflows and crypto funds lost $200 million, the report said.
Within credit markets, risk-sensitive assets saw heavy redemptions. High-yield bond funds lost $5 billion, bank-loan funds saw $2.4 billion of outflows, and emerging-market debt funds recorded $3.1 billion in withdrawals.
Sector and regional flows were mixed. Korean equities saw a record $8.9 billion inflow, while Japan attracted $6.3 billion, the largest weekly inflow since 2013. In contrast, financial stocks experienced a record $3.7 billion outflow, tech funds posted their first outflow in seven weeks at $900 million, and healthcare funds saw their biggest redemption since July at $1.6 billion.
