BofA strategist warns markets are ignoring risk and urges shift to defensive stocks

Bank of America strategist Sebastian Raedler has warned that equity markets are being priced for a near-perfect outcome, leaving investors exposed as valuations stay elevated. Raedler, BofA’s head of European equity strategy, said expectations for key measures including profit margins and five-year forward earnings growth have climbed to historic highs, even as the equity risk premium — a gauge of risk aversion — has fallen to its lowest level in 20 years. In his view, that gap points to a market that is no longer properly accounting for downside risk. Raedler advised investors to move away from cyclical sectors where valuations are high and the investment case is fragile, and instead look at defensive names that the market has overlooked for an extended period. He specifically highlighted healthcare and consumer staples as preferred sectors.