Bank of America: Stock Rebound is Only a ‘Textbook’ Bear Market Rally, Further Declines Likely to Come

Although stocks have strongly rebounded from the lows witnessed earlier this summer as investors became hopeful of an inflation slowdown and subsequent taming of Fed monetary policy, the recent rally is not here to stay, and stocks will once again slump to new lows.

According to Bank of America chief investment strategist Michael Hartnett, the stock market rally that become the pinnacle of summer appears to be nearly over, as it was nothing more than a classic “textbook” bear market rally that is loosing momentum. Indeed, the S&P 500 has risen over 15% since slumping to a low for the year in June, following robust jobs data and a slight cooling of consumer prices, but the worst has not yet passed. “Everyone is bearish but no one has sold stocks,” said Hartnett, as cited by Forbes.

He points to historic data going back to 1929 on the previous 43 bear market rallies during which the S&P 500 rose by more than 10%; compared to the current rally, which saw the index jump by approximately 17.2% over a span of 39 trading days— suggests that trading activity has reached its peak. Moreover, the Fed is likely far from being done with raising borrowing costs despite already bringing the overnight rate to 2.25%, thus putting a cap on further market gains.

Likewise, other Bank of America analysts echoed similar sentiment, with head of US equity and quantitative strategy Savita Subramanian warning that stock market valuations still remain too high for the bear market to be finished, and that a continuation of a bull market is “unlikely.”

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Information for this briefing was found via Forbes. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.