2023 Outlook: Bank of America's Top 10 Trades for Investors

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Bank of America strategists sees next year the U.S. will experience a mild recession with the fed funds rate peaking at 5.25% and the Fed eventually cutting in December.

Strategist Michael Hartnett and team wrote in a note:

Stocks will move sideways and the $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ will end 2023 at 4,000 . 

We stay bearish risk assets in H1, likely turn bullish H2, We are long US government bonds in H1 with "hard landing & credit event risks underpriced," maintaining optimal S&P entry points of "nibble" at 3,600, "bite" at 3,300, and "gorge" at 3,000.

Source from BloombergNews

Here are their top 10 trades directions suggested for 2023:

1. Long 30-year Treasury $TLT(TLT)$  $US30Y(US30Y.BOND)$ on recession, unemployment, Fed cuts late’23, history (US Treasury returns have never fallen for 3 consecutive years)."  

2. Yield curve steepeners "as US yield curve always steepens as recession begins and markets anticipate Fed flipping from hikes to cuts."

3. Short U.S. dollar $ProShares Ultra Semiconductors(USD)$ $USD Index(USDindex.FOREX)$ $Invesco DB US Dollar Index Bearish Fund(UDN)$long emerging markets assets $EEM(EEM)$ , $SPEM(SPEM)$ ,$First Trust Emerging Markets AlphaDEX Fund(FEM)$ , long EM distressed bonds, long Korean won on China reopening, long Mexican peso on "nearshoring."

4. Long China stocks $MCHI(MCHI)$ as "COVID reopening was v bullish for US/EAFE stocks, China has high 'excess savings' and China stocks remain v contrarian long trade." 

5. Long gold $XAU/USD(XAUUSD.FOREX)$ , $SPDR Gold Shares(GLD)$ , $iShares Gold Trust(IAU)$ , long copper $Copper - main 2303(HGmain)$ $iPath Series B Bloomberg Copper Subindex Total Return ETN(JJC)$ ,$COPX(COPX)$ ,$GLOBAL X COPPER MINERS UCITS ETF(COPX.UK)$ on USD peak, China reopening, metal inventory shortages, energy transition acceleration, need in 2020s for inflation hedges."

6. Barbell credit with "long credit too consensus in ’23, we barbell long IG tech bonds (>5% yield + strong balance sheets) with distressed HY debt in Asia (17% yield)."

7. Long global industrials  $Industrial Select Sector SPDR Fund(XLI)$ and small caps $IWM(IWM)$ on "secular leadership shift in 2020s from deflation to inflation assets, driven by globalization to localization, monetary to fiscal excess, inequality to inclusion and so on just beginning; capex set to be new macro bull story." 

8. Short U.S. tech $Technology Select Sector SPDR Fund(XLK)$ ,$Communication Services Select Sector SPDR Fund(XLC)$ (XLC). The "old leadership, still over-owned, era of QE is no longer, era of globalization no longer, plus peak penetration and regulation risks." 

9. Short private equity $PSP(PSP)$ with "redemption risks given shadow banking exposures to housing & credit risks." 

10. Long EU banks, short Canadian, Australian, New Zealand and Swedish banks. "EU fiscal stimulus to wean Eurozone off Russian energy dependence, Chinese export dependence, US military dependence vs real estate market busts in Canada/Australia/NZ/Sweden."

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