When it comes to bear markets Bank of America, investors can take solace in history, which shows that there is always an end where there is a beginning.
After the U.S. benchmark S&P 500 fell into bear territory at the start of this week, according to Bank of America, investors only have a few bear-market months left. After that, there will be a bull market.
According to history, the average peak-to-trough bear-market decline is 37.3 percent over 289 days, according to B. of A. Global Investment Strategy’s chief investment strategist, Michael Hartnett.Matching that pattern would bring an end to the suffering on Oct. 19, 2022, the 35th anniversary of Black Monday, as the stock market fall of 1987 is known, with the S&P 500 likely bottoming at 3,000, according to statistical averages.
A bear market is defined as a 20% decrease from a recent high, according to one prevalent definition. The index was down 23.55 percent as of Thursday from its record close of 4,796.56 on Monday, Jan. 3, 2022.
The average bull market lasts 64 months, with a 198 percent return, according to Bank of America, “so next bull sees the S&P 500 at 6,000 by Feb. 28,” said Hartnett.
Meanwhile, the bank’s own bull-and-bear indicator (below) has fallen as far as it can into “contrarian bullish” zone for the second week in a row.
Hartnett noted that the indicator had already fallen to zero in August 2002, July 2008, September 2011, September 2015, January 2016, and March 2020. Except in the case of a double-dip recession, such as in 2002, or in the event of systemic events, such as in 2008 and 2011, three-month returns have been high when it has previously zeroed out, as seen in the table below.
“Positioning is dreadful,” Hartnett continued, “but profits/policy imply nibble at [an S&P 500 level of 3,600], bite at [3,300], gorge at [3,000].” Even though B. of A. clearly does not believe the selloff is over. In its tightening cycles, the Federal Reserve tends to “break something,” as shown in the chart below from B. of A.
According to the bank’s data, $16.6 billion was invested in stocks last week, $18.5 billion in bonds, and $50.1 billion in cashThe data also revealed the first week of inflows to emerging-market equities in six weeks, totaling $1.3 billion; the largest inflow to U.S. small-cap stocks since December 2021, totaling $6.6 billion; the largest influx to U.S. value stocks in 13 weeks, totaling $5.8 billion; and the largest flow toward tech in nine weeks, totaling $800 million.