Bank of America: The biggest risk to global stocks is exactly the opposite of what most people think

The Bank of America says everyone is ignoring an interesting risk that would be a bigger hit to investor confidence that a Fed rate hike by Janet Yellen.

No one knows for sure when the Fed can make its first rate hike in nearly ten years, but Bank of America says most people are ignoring an interesting risk: that the Fed doesn’t hike and actually embarks on another round of QE. Here’s an excerpt from the note sent by the firm and lead analyst Savita Subramanian.

Bond swings are extremely crazy the world's biggest investors are ripping up their risk models

The $1.2 trillion meltdown in just three months is an early sign that it\’ll not be easy to wean the world off six years of zero rates – and central banks used up their arsenal. Read on

Biggest risk to global equities? Another round of US QE

While most are centered on the risks around a withdrawal of liquidity, we believe the biggest hit to confidence could be the opposite: if another round of US QE is necessary to support the economy. As the market could have a knee-jerk rally on an indication of forthcoming stimulus, we think this would be short-lived and could result in the red. QE fatigue has already been evident: each subsequent round of QE has seen diminishing risk rallies. Another round of QE would imply $4.5tn was not enough. Also it would also have in all probability a very negative read- through for QE programs currently underway in Europe and Japan. This is not our base case, but may be the risk that appears to be getting the least attention.

The firm doesn’t expect that the Fed will take this course, but the team does believe that it is enough of a possibility it should not be eliminated. This may come as the Fed meets now and Fed chair Janet Yellen is scheduled to speak on Wednesday. Nearly all Wall Street doesn’t see any changes only at that meeting, and that the Fed won’t do anything whatsoever until at least September if not later.