Bank of America Chief Investment Strategist Michael Hartnett Talks Market Reaction to the Iran War
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Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepke in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens.
It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, radio, news. Bank of America's Capital Markets Conference underway in Paris. Joining us now is Bloomberg's Francine Lacroix with a special guest. Good morning, Fran. Good morning, John. I'm so happy to speak to Michael Hartnett of Bank of America. Michael, thank you for joining us. Look, you've said the markets are starting to resemble the run-up to 08. What do you mean and what are you looking at? Well, one big difference, of course, with 08 is that the oil shock there was demand-led.
It wasn't supply-led. It was China, India. So, yeah, you definitely have an environment where oil prices are rising to high levels. Back then, the similarity perhaps is that you had these credit tremors sort of bubbling away in the background. So, that's the similarity. And certainly, the price action year today is fairly similar. But you know, the supply shocks are more sort of 73, 79, 2022. And I think that the market generally has been coming into this thinking it's supply shock, it's short term, and therefore it's going to be over pretty quickly. And I think that's the kind of revision that the market's going through in the last couple of days. Is that complacency? Are they too complacent? At what point does it start feeding through earnings?
Well, I mean, it will feed into earnings without a question. But I think that coming into this, you know, people are long equities that they're hedged, but they are long. But I wouldn't say it's complacency, but everyone thought it was a short war. Yeah. Everyone thought it would be folded earlier. And, you know, there's an election for Trump to win. You know, the market's too big to fail. You know, we've seen this script before. We don't want to sell. So I think what's happened the last couple of days is kind of like people said, I don't want to sell because the policy will change. Right. And it's now actually we're going to have to sell to change the policy. Do you see what I mean? So it's kind of like it's flip flopped a little bit like that.
But Michael, what I thought was striking is that the market was pricing in some kind of short resolution in the shorter term. But actually, if you read the geopolitics and if you read all the transcripts, that just wasn't there. So is the market looking for something? Yes. I mean, look, the market's looking for an off ramp. The market's looking for a ceasefire. The market's looking for an end. The market's desperate for the oil price to not move in an exponential way to the upside, but actually back down. Because the other thing that's been happening before this is that you've been having this tightening of financial conditions. And so the market needs an easing of financial conditions. But the Fed finds it tough to deliver that if oil's at 150, 200.
But- I think ultimately you will get that easing of financial conditions, but this obviously delays it somewhat. What do you think is most being mispriced right now? Well, I think that if you look at the broader markets, I would say that equities still look rich relative to where they could do in a genuine shock where the Fed is not able to cut interest rates.
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