BofA says bull market in stocks means more gains 92% of the time

(Bloomberg) – Savita Subramanian of Bank of America Corp. doesn’t just call an official end to the bear market that has plagued US equities, it also says stocks have room to continue to rally.

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“The bear market is officially over,” the BofA strategist wrote in a note on Friday. While the definition of a bull market is “arbitrary”, the S&P 500 has extended its gains in the 12 months after crossing the 20% turning point 92% of the time since the 1950s, she added.

The benchmark U.S. equity index closed Thursday 20% above its October low after a rally in tech stocks. However, analysts warned that the rally could stall ahead of the Federal Reserve’s rate decision next week. The gauge posted modest gains on Friday.

But key factors beyond the excitement around the artificial intelligence that propelled this year’s gains could give the bull market some leg up, Subramanian said.

She cites the end of the zero interest rate policy and the return of positive real yields and improving corporate margins following corporate cost cutting as a few factors in her case for US stocks to grow. .

Subramanian’s view differs from his Bank of America counterpart, Michael Hartnett, who earlier on Friday called the S&P 500 bull market breakout “bubbly” and reiterated his bearish call on stocks.

While it’s not unusual for strategists under the same roof to have differing views, the contrast speaks to the fact that Wall Street’s most important voices disagree on whether momentum can build. continue into the second half after stocks have gained for two straight quarters despite dire predictions through 2023.

As Head of US Equities and Quantitative Strategy, Subramanian focuses primarily on US equities, while Hartnett’s views are derived from a global, multi-asset perspective.

Signs of continued decline are also seen in investor positioning. In the week of June 7, technology funds saw $1.2 billion in outflows, their first in eight weeks, according to BofA, citing data from EPFR Global. The move came after the group recorded record entries last week.

Subramanian last week told Bloomberg Radio that the flow data was “interpretive” and said his increasingly optimistic view came from revised recession forecasts and talks with clients who say they have cash in hand. reserve waiting to be deployed in actions.

According to Subramanian, the wall of worry can persist until investors start feeling the pain of fear of missing out.

“We think we’re back in bullish territory, which could be part of what it takes to get investors back on the edge for stocks,” she said. “If investors feel the bond pain, via lower yields or negative opportunity costs – likely if real rates rise from here – they should be encouraged to return to equities, especially stocks that are benefiting from rising real rates.”

Subramanian also believes that various signals suggest the equally-weighted version of the S&P 500 could produce double the returns of the capitalization-weighted main gauge as the strength seen in tech stocks spreads to other sectors.

Extreme concentration risks and quantitative crunch indicate that a mean reversion in valuations is likely and that strength could spread to cyclical and higher-beta stocks, she said.

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