Hartnett: "Wall Street Is Ominously Trading The 2008 Analog"

Last Wednesday, shortly after we published that "Private Credit's Margin Call Moment Arrives As Morgan Stanley, Cliffwater Gate Investors" we were so stunned by the symmetrical confluence of events now - when we have a both an oil price shock (brent on its way to $150) and a financial crisis (private credit) - relative to the summer of 2008, when just like now, oil was headed to $150 while the simmering subprime crisis was just weeks away from claiming Lehman brothers, that we rhetorically asked on X, "If only there was another moment when oil was about to hit $150 and a major financial crisis had already quietly emerged."

If only there was another moment when oil was about to hit $150 and a major financial crisis had already quietly emerged

— zerohedge (@zerohedge) March 12, 2026

Well, just hours later, the comparison between 2026 and 2008 it appears is all most on Wall Street could talk about, thanks in no small part to the latest Flow Show note by BofA's Michael Hartnett, who makes the analogy the key pillar of not only his "Biggest Picture" section, but the entire note, to wit:

Aug '07 to Jul' 08 oil price $70/bbl to $140/bbl and subprime tremors began (BNP/Northern Rock/Bear Stearns); oil peaked Jul 3rd 2008, same day as ECB hiked 25bps, one of great policy mistakes of all time… 74 days later Lehman bust, GFC in full effect as credit trumped oil (collapsed to $40/bbl), ECB forced to cut 325bps; probability of ECB rate hike by Jun’26 now 75%, and Wall Street ominously trading ’07-‘08 analog.

To underscore just how bad it has become, his first zeitgeist quote this week is "I can't work out what's worse, the oil thing or the credit thing." Good cause neither can we. 

Taking a closer look at just it is Wall Street is trading, in his "Tale of the Tape" section, Hartnett writes that the soaring oil is tightening financial conditions, and a Fed cut is being priced out (June was 100% probability, now 25%); Yet the BofA strategist warns that a bigger risk for stocks is EPS not CPI; that's because big banks are the glue between Wall St & Main St and one can’t buy cyclicals when banks breaking down (BKX <150) on fears of the great private credit bubble unknown.

How is Hartnett trading this analog to 2008? As he explains in the Flow Show, he would fade oil >$100/bbl, US$ (DXY) >100, 30-year UST yield >5%, and SPX <6.6k. These are levels set to provoke war/oil/Fed/tariff policy response to short-circuit Main Street risks. Here, Hartnett reminds us of one of his favorite aphorisms ("market stop panicking when policymakers start panicking"), and writes that corrections end when “oversold” assets trough (software, bank loans & Bitcoin have, Mag7 & private credit have not), “overbought” are sold (gold, semis, metals, EM, Europe, banks getting hammered), and the “safe havens” lose bid (oil & US$). To be sure, this sequence is playing out which means liquidation pressures should soon ease if policymakers respond; However, if this trading call is wrong, and policy panic levels don’t hold, then EM, Japan/Korea, banks, industrials, semis, and gold are most vulnerable to further portfolio de-grossing, and less vulnerable are bonds, bank loans, China & UK stocks, staples, Mag7, consumer discretionary outperform. As for the best ceasefire buys, these would be long Treasuries, China, consumer, small cap. But should war with Iran stretch out + we get more shadow bank events, stagflation is the playbook.

How are others trading this global financial crisis analog? This week we get the latest look at groupthink sentiment: March 17th BofA publishes its latest Global FMS; Hartentt who manages the FMS, reminds us that prior surveys taken after unanticipated negative shocks (Apr’25 tariffs, Mar’22 Russia-Ukraine, Mar’20 COVID, Aug’11 US debt downgrade) saw “bear panic” to buy as cash jumped by >0.6ppt, growth expectations fell by >30ppt, and stock allocation fell by >20ppt. 

If the March FMS shows that cash levels jumped above 4% after being record low just months ago, and growth expectations turn negative, then Overweight stock allocation will drops from 48% to <20%. Which, incidentally, we already confirmed earlier in 'Record Liquidations: Institutions Just Sold The Most S&P Futures Ever." To Hartnett, such a surge in bearish sentiment will be first sentiment signs that we are close to lows. 

Also watch FMS metrics of credit risk i.e., credit default risk, counterparty risk, liquidity conditions, and bank sector exposure (banks #1 most OW sector in Feb FMS) for signs that financial system concerns are on the rise; to be sure, that has not happened yet but the abovementioned FMS metrics showed early deterioration starting mid-2007 ahead of 2008 GFC (especially after the Aug’07 BNP suspension of redemptions on three funds holding subprime mortgages... very similar to what Blackrock, Morgan Stanley and Cliffwater all just did in the past week).

Moving from traders to investors, Hartnett has more bad news: yes, the BofA Bull & Bear Indicator has peaked, risk-off outflows are more visible in US HY bonds, EM debt, and especially financial stocks (see record outflow this week)...

... but big picture positioning yet to show a “bear panic” for contrarian investors to buy; positioning still more bullish than bearish because consensus is:

• war won’t be long
• private credit not systemic, and
• policymakers always ride to Wall St rescue;

Assuming a worst case scenario, the BofA strategist notes that good long entry points into bear markets were when BofA Bull & Bear below <2.0 in 3 out of 4 bear lows past 15 years )...

... also when BofA's Global Breadth Rule triggered is also a “buy signal” (when net 88% of markets in MSCI ACWI trading below 200 and 50-day moving averages); when 4-week outflows from global equity and HY bond funds hit 1.5-3.0% of AUM, and when BofA Global FMS cash levels closer to 5%. 

Putting it together, Hartnett claims that positioning right now says "no big rally from current levels without end of war and big easing of financial conditions"; the good news: the Strait of Hormuz is too macro supply chain-important for long war; normally 20mbpd oil transits daily through Strait (incl 2mbpd Iranian oil), currently just 2-4mbpd, and 5mbpd from Saudi/UAE pipelines + 2mbpd from IEA’s strategic oil reserve can’t make up shortfall (Gulf = 20% of global gas/LNG supply), which is why oil closed at the highs on Friday. 

Yet once positioning turns (much) more bearish and political/macro/financial sector risks force US into push for ceasefire, best trades are…

• Treasuries: 30-year US Treasury at 5% are attractive as recession/credit event hedge and >5% and solvency of US government threat means Fed intervention;
• China: Hartnett would buy China equities as inflation is rising (core CPI 1.8% = highest since 2019), fiscal spending rising (China targeting record deficits of 4% GDP in ’25 & ’26 – and need to counter new China threats from Iran oil, Belt & Road, US Pax Silica policy2 = more stimulus), and bond yields rising (30-year yield up 50bps past 12 months)… As a reminder, the end of deflation in Japan & Europe (latter aided by Russia/Ukraine) saw H1’2020s secular outperformance of stocks over bonds…China story in H2’2020s; oil, rate hikes, EPS risks… all say growth>value short-term (Mag7>banks) but fiscal narrative of New World Order means New World Bull in International.

• The Poor & the Small: Trump was elected on "less war, less inflation"; So besides war, this means that affordability & cost of living are the most important issues to voters; and Trump can’t allow approval ratings to fall much further (43% approval, 36% on inflation, 40% on economy); Hartnett expects post-war policy to aggressively shift to address cost of living… most positive for consumer discretionary, especially stocks to play lower-end of K-shape consumer, and boost conditions at small businesses.

We finally move on to the downside case, namely Hartnett's risk view. He writes that if the Iran war goes on too long, then shadow banking risks mount (Private credit was already in a crisis before the Iran war), and a sustained high oil price risk to Wall Street is EPS not CPI (consensus forecasts 17% S&P 500 EPS growth next 12 months); Recall that there was no US recession after 2022 Russia-Ukraine oil shock because US government spending had jumped from $4tn to $6tn in two years, US consumers had $2tn of COVID excess savings to spend, and the US labor market was adding an average of 400k payrolls per month. That is most certainly not the case today (government spending is flat YoY, savings rate 3.6%, payrolls were down 92k last month; and also in ’22 there were no credit issues in unregulated shadow banking sector. 

Echoing what we said at the very top (and first on Wednesday), Hartnett concludes that asset performance in 2026 is more ominously close to price action seen from mid’07 to mid’08…. then the oil surge was demand-led (China & India) not supply-led, like 1973 (unlike 2022) credit availability tightened, and combo of oil & credit shocks meant correct asset allocation was for commodities (oil, gold) over financial assets, bonds over stocks, high quality government/IG bonds over HY, EM stocks over US, barbell of energy & staples over banks & tech. 

Finally, in his second zeitgeist quote, Hartnett has some parting words for Gen Z: “No jobs, no savings, oil up 50%, shadow banking…if Gen Z don’t bail now should be quite the rip.”

Much more in the full Hartnett note available to pro subs.