us stocks

After the rally between 2019 and 2021 where the S&P 500 with dividends almost doubled, and the world’s most popular index gained double digits in all three years, things have been tough for US stocks this year.

The S&P 500 entered a bear market earlier this month. Stocks have been making newer lows in 2022 as the broader macro picture has continued to deteriorate. Inflation has been a lot stickier than what the Federal Reserve and most economists believed. Also, the Fed’s rate hikes have been much steeper than what most had forecast.

While many brokerages believe that US stocks are headed lower and see a recession on the horizon, Bank of America believes that the S&P 500 would bottom in the fourth quarter, 19 October to be precise, and then we’ll see a bull market which would take the index to 6,000 by 2028.

 

Bank of America expects US stocks to correct from these levels. Citing statistical data on previous bear markets, it expects the S&P 500 to bottom at 3,000. It said that the average bear market lasts only about 289 days while stocks on average fall 37.3% between peak and trough. Bank of America also said that on an average bull market last 64 months and stocks rise 198% over the period.

Bank of America Predicts a Massive Bull Market in S&P 500

Notably, the longest bull market in US history was between 2009 and 2020. The 11-year bull market was ended by the COVID-19 pandemic. It was the sharpest bear market on record and stocks tumbled badly between February and March before bottoming on 23 March. However, US stocks rallied hard after that led by the rally in US tech stocks as well as stay-at-home growth names.

Things have turned upside down for those pandemic winners now and stocks like DocuSign, Netflix, Zoom Video Communication, and Teladoc now trade at a fraction of their highs. Things have been tough for these companies as the pandemic-fuelled growth has faded. Jim Cramer also believes that the former market favorites have room to run lower and is bullish on dividend stocks and also talked of buying the dip in energy companies.

US Stocks Might Rally According to Bank of America

The overall economic sentiments have been turning dire by the day and many brokerages are now worried about a recession. Goldman Sachs has also raised the odds of a US recession while lowering the GDP forecast. Tesla’s CEO Elon Musk also sees a recession as inevitable. Former Treasury Larry Summers also said that he sees a recession as likely.

The Fed has been raising rates despite the economic slowdown as the US central bank is more worried about multi-decade high inflation. To be sure, prices are rising globally and data released by UK’s Office for National Statistics showed that inflation rose at an annualized pace of 9.1% to hit a new 40-year high.

Bank of America’s Michael Hartnett believes that investors would see any rallies unless markets see signs of inflation stabilizing. He says that investors can “nibble” at S&P 500 at 3,600 levels at “bite” at 3,300 levels. If S&P 500 falls to 3,000, he calls on investors to go overboard buying stocks.

Meanwhile, for now, US stock market sentiments are quite tepid. After the rally yesterday, global markets are lower today. US stocks are also set to open lower today as yesterday’s monster rally fizzles away.

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