Hartnett: Did You Sell The Last Hike?

After correctly calling the general direction of the market in 2022 as well as all major inflection points, BofA CIO Michael Hartnett has seen some occasional mockery this year, especially after he said that the post-March bank crisis melt up in the S&P would not rise above 4,300, and yet rise it did after the S&P rose above the key resistance level in June, and then kept rising… and rising, until it hit a 2023 high of 4600 several weeks ago, yet none of this would have been possible without the sudden emergence in the tech bubble consisting of just a handful of stocks known as the “Magnificent 7″ AI-linked tech giants, which have seen the bulk of capital inflows this year, even as the rest of the market has been sold off (as discussed here).

And yet, two weeks ago a top JPM TMT trader unexpectedly rang the death knell of the AI bubble when he admitted that “AI hype continues to wane. Companies spent much time on AI during earnings calls/analyst days, and now it’s time to start putting up results. Anecdotally, the experience of these products has underwhelmed users, and the novelty could wear off quickly.” Incidentally, the frontrunning of the AI-bubble full-blown collapse was the reason why at the start of the month, Goldman’s Prime Brokerage noted that the cumulative net shorting by hedge funds in 2023 just hit a YTD high as we get a massive pile up of bears hoping to frontrun the next market crash. Incidentally, this burst in shorting is also why GS Prime turned tactically bullish late last week as we discussed in “Surge In Short Selling Has Goldman Prime Predicting Imminent Painful Squeeze.”