Here’s the ‘most contrarian trade’ on Wall Street — and investors can thank the Fed, Bank of

Remember that time when the Federal Reserve was busily dialing up benchmark interest rates to normalize crisis-era monetary policy? Well, Wall Street doesn't either, after a 180-degree pivot on Wednesday by Powell & Co. that sent expectations for future rate increases to rock-bottom levels — at least for the moment.

Bank of America research analysts on Friday described wagers for interest-rate hikes in 2019 as the "most contrarian" investment bet in the world, in a popular "flow show" research report titled "Long risk, long leverage, short vol."

Analysts at Bank of America Merrill Lynch, led by Chief Investment Strategist Michael Hartnett, said "consensus [is] now rushing back to 'low growth, low rates' playbook of long credit, [emerging markets], growth stocks."

Thus far, that has helped to provide further buoyancy to a stock market that was already on the uptrend following a dreadful few months at the end of 2018. It is that violent market reaction that resulted in the worst annual returns for the Dow Jones Industrial Average DJIA, +0.08% the S&P 500 index SPX, -0.12% and the Nasdaq Composite Index COMP, -0.40% since 2008.

On Wednesday, the plain-spoken Powell made a deliberate case for no further interest-rate hikes, holding federal-funds futures rates in a range between 2.25% and 2.50%, as expected. What wasn't expected was the dovish posture.

Before Wednesday, the Fed had suggested that three rate hikes were likely, and as recently as December pointed to two rate increases as most likely.

Now, it isn't clear if any hikes will occur, with some market participants arguing that policy makers are either cowing to the market's reaction to rate hikes and an unwind of its $4 trillion balance sheet or demonstrating poor leadership.

Read: Opinion: This is the year when the Federal Reserve's credibility finally died

Also read: MarketWatch's snapshot of the market

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