Bank of America Says Market Primed for ‘Melt-Up’ in Q1

(Bloomberg) — Financial markets are set for a “risk asset melt-up” in the first quarter of the new decade, according to Bank of America Corp (NYSE:).

As Brexit and trade war risks recede, and with the Federal Reserve and European Central Bank still adding liquidity, the outlook for the beginning of 2020 is bullish, strategists including Michael Hartnett wrote in a Dec. 12 note to clients.

“We continue to expect returns to be front-loaded in 2020,” the strategists said. Positioning is turning bullish and December’s global fund manager survey on Tuesday should confirm the positive sentiment, they added.

The strategists expect the to reach 3,333 by March 3 — a rise of 5.2% from Friday’s close — and see the Treasury yield hitting 2.2% by Feb. 2, an increase of 36 basis points.

Global stocks climbed to record highs Friday after the U.S. and China agreed to a phase-one trade deal and the U.K. Conservative party won a parliamentary majority, clearing the path for the country’s exit from the European Union. While equities in Asia were mixed on Monday, they climbed in Europe alongside futures on U.S. stock indexes, as investors awaited further detail on the trade front.

Read more: What’s In and What’s Missing in the U.S.-China Trade Deal

“Some of these geopolitical risks seem like they are somewhat resolved, but they’re only on hiatus,” Seema Shah, chief strategist at Principal Global Investors in London, said in an interview Friday.

While a rally should ensue in the short term, she said investors should take a defensive stance in their asset allocation.

The benchmark MSCI Asia Pacific fell 0.1%, receiving support from better-than-expected activity data from China. Later in the session, the STOXX Europe 600 index rose as much as 1.1% to reach an intraday record high ahead of an unexpected decline in German manufacturing data.

Many investors are “agnostic” about the next move for the market, Daniel Tenengauzer, head of markets strategy at BNY Mellon, wrote in a research note, citing client feedback.

“Following conference calls with investors in Asia, EMEA and the Americas as well as meeting with investors in the U.S. and Canada, we conclude that investors are uninterested in adopting a strong bias in any direction,” he said.

(Adds market moves, BNY Mellon comment from paragraph eight.)

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