Bank of America warns strong economic data could hit stocks by causing the Fed to dial back help

Published Fri, May 7 20217:51 AM EDTUpdated Fri, May 7 20219:58 AM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

A so-called taper tantrum could be looming as central banks reduce fiscal stimulus, Bank of America has warned. Tapering is when governments reduce financial stimulus or quantitative easing, often causing stock prices to fall. The phrase taper tantrum was coined in 2013 when the Federal Reserve said it would gradually reduce the financial stimulus put in place after the 2008 financial crisis, causing soaring Treasury yields and stock market jitters. In a note Friday, the BofA strategists said this tapering had already begun and was "bad news" for stocks, in particular "FAAMGs": Facebook , Amazon , Apple , Microsoft , and Alphabet 's Google. But they also highlighted some "good news" on the horizon. This good news, according to the strategists led by Michael Hartnett, was that the Federal Reserve is "determined to stoke Wall St exuberance & Main St inequality." "Fed has been tech's best friend for past 10 years," they added. However, they noted that the recent sell-off in technology stocks is "reminiscent of 2000/01 post-bubble price action," while some commentators think the market is close to its peak . Governments around the world have poured money into economies to mitigate against the impact of the coronavirus pandemic, but BofA said this was now expected to fall dramatically. QE for the big four central banks (the Fed, the European Central Bank, Bank of Japan and People's Bank of China) is set to fall from $8.5 trillion in 2020 to $3.4 trillion this year and $0.4 trillion in 2022, BofA said. "In Q2/Q3 the stronger the macro the quicker & bigger the taper," the strategists said. The BofA note was issued before Friday's disappointing U.S. employment report for April , which eased the concerns raised by the strategists. Before the April jobs report, data pointed to a U.S. economy well on the way to recovery, with economists forecasting booming gross domestic product for the first — and especially second — quarter. Added to this, the Fed warned of the potential of "significant declines" in asset prices in a report published Thursday . Concerns about a possible inflation rise have also rattled investors, with Fed Chairman Jerome Powell being questioned about whether the central bank is worried about rising prices. —CNBC's Jeff Cox contributed to this report.

Traders work on the floor of the New York Stock Exchange.

NYSE

A so-called taper tantrum could be looming as central banks reduce fiscal stimulus, Bank of America has warned.

Tapering is when governments reduce financial stimulus or quantitative easing, often causing stock prices to fall. The phrase taper tantrum was coined in 2013 when the Federal Reserve said it would gradually reduce the financial stimulus put in place after the 2008 financial crisis, causing soaring Treasury yields and stock market jitters.

In a note Friday, the BofA strategists said this tapering had already begun and was "bad news" for stocks, in particular "FAAMGs": Facebook, Amazon, Apple, Microsoft, and Alphabet's Google.