Stocks’ latest rally could be almost over, warns Bank of America
Buzz Update Stocks’ latest rally could be almost over, warns Bank of America
Investors hoping to reap more gains from the stock market’s latest rebound may be too late, according to a team of Bank of America strategists.
According to a note sent to clients and the media on Friday, the bank’s proprietary Bull & Bear indicator broke out of extremely bearish positioning for the first time in nine weeks, rising from 0 to 0.4.
This contrarian green and red indicator is dictated by the large arrow in the middle which can go from extremely bearish – a signal to buy for investors – to extremely bullish, when too much euphoria in the markets causes investors to sale.
BofA chief strategist Michael Hartnett attributes the shift to improving equity market breadth, meaning a wider range of stocks trended higher, as well as more d money flowing into the bond and credit markets.
However, since the BofA gauge is often seen as a contrarian indicator, this could mean that the latest bear market rally could already be about to end, according to Hartnett.
On Thursday, U.S. stocks posted the first consecutive losses in two weeks after Federal Reserve officials said interest rates would beat expectations. Stocks have steadily climbed from lows seen in a disappointing September consumer price inflation reading through mid-October. Investors were further encouraged last week when the October CPI was weaker than expected.
The S&P 500 SPX,
has been on a choppy run since mid-October, when markets got a disappointing consumer price inflation (CPI) figure for September.
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The bank’s latest weekly data shows stocks saw the largest inflows – $22.9 billion – in 35 weeks, and “the hunt is on,” Hartnett said.
Last week (ending November 16), $4.2 billion was paid out in bonds, $3.7 billion in cash and $300 million in gold. It was also the 40th consecutive exit from European stocks, the longest run from this region on record.
Last week, Citigroup warned clients that they had six weeks to squeeze the bear market from the inflationary surprise.
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