Despite the extensive losses in stock markets this year, it’s not over until it’s over—and investors should continue to sell as the market rebounds. That’s the message from a team of strategists at Bank of America (NYSE: BAC) led by Michael Hartnett in Friday’s “Flow Show” note.
The bank focuses on whether the market has capitulated, which refers to investors giving up on recapturing lost gains. Some strategists see capitulation as a sign that the market has bottomed and is a good time to buy stocks.
The Dow industrials DJIA, -1.38% dropped 1,200 points earlier this week, the Nasdaq Composite COMP, -2.16%, and the S&P 500 SPX, -1.59%, even though the selling hasn’t stopped, some aren’t convinced. Major indexes are still on track to post a fifth straight week of losses, even as stocks rise in early Friday trading.
The bank’s institutional and private client flows haven’t reached capitulation levels, BoA said, adding that other pieces of the puzzle are missing. For example, among their private clients with $2.9 trillion in assets under management, 62.8% is allocated to stocks (the lowest level since February 2021), 18% to bonds (the highest level since July 2021), and 12.1% to cash (the highest level since January 2021).
They said there’s no chance of a Federal Reserve capitulation anytime soon. According to Hartnett, a massive market drop is required before the Fed emphasizes tightening monetary policy.
According to Hartnett and his team, investors should still ‘sell any rips’ even if the stock market is ‘very vulnerable to a bear rally’ according to Hartnett and his team.
Furthermore, they remind out that the Japanese yen has risen by 0.03 percent against the US dollar in the previous 40 years after the financial crisis.
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