When it comes to bear markets, investors can take comfort from history which suggests that where there’s a beginning, there’s always an end.
And according to Bank of America, investors have only got a few months left to endure the bear market that the S&P 500
SPX,
tumbled into on June 13, at the start of this week. And then will come the bull market.
As per history, points out chief investment strategist Michael Hartnett, the average peak-to-trough bear market decline is 37.3% and lasts 289 days. That would put the end to the pain on Oct. 19, 2022, which happens to mark the 35th anniversary of Black Monday, the name commonly given to the stock market crash of 1987, and the S&P 500 index will likely bottom at 3,000.
A popular definition of a bear market defines it as a 20% drop from a recent high. As of Thursday, the index was off 23.55% from its record close of 4796.56 hit Monday, Jan. 3, 2022.
And an end typically marks a beginning with Bank of America noting the average bull market lasts a much longer 64 months with a 198% return, “so next bull sees the S&P 500 at 6,000 by Feb. 28,” said Hartnett.
Meanwhile, another week saw the bank’s own bull and bear indicator fall as far as it can go into “contrarian bullish” territory —
BofA Global Investment Strategy
That indicator previously fell to 0 in August 2002, July, 2008, Sept. 2011, Sept. 2015, January 2016 and March 2020, said Hartnett. When it has previously hit zero, except in the case of a double-dip recession such as 2002 or systemic events, as in 2008 and 2011, three-month returns have been strong, as this table shows.
BofA Global Investment Strategy
“Positioning dire, but profits/policy say nibble at SPX 36K, bite at 33K, gorge at 30K,” added Hartnett. That’s even as they clearly don’t think the selloff is quite over. As per the next chart, a reminder from BofA of how the Federal Reserve tends to “break something,” with tightening cycles:
BofA Global Investment Strategy, Bloomberg, Global Financial Data
More data from the bank showed $16.6 billion flowed into stocks in the most recent week, $18.5 billion from bonds and $50.1 billion from cash. Also, the data showed first week of inflows to emerging market equities in 6 weeks of $1.3 billion, the biggest inflow to US small cap since December 2021 of $6.6 billion, the largest influx to US value in 13 weeks of $5.8 billion and biggest to techs in nine weeks, of $800 million.