Bank of America said in a note on Friday that the stock market is poised to rally from current levels.
According to the note, Bank of America's Bull & Bear indicator is an extreme contrarian buy zone that investors should take advantage of. The S&P 500 would go to 4,400 if the rally continued.
According to the note, investors should short the stock market at those levels. The bank said in its weekly note that the bear rally would go short.
During the 2000-2002 dot-com bubble burst, the Nasdaq saw eight bear rallies with a minimum gain of 18%. BofA said that a rally would send the index up 8%.
The stock market is driven by the Federal Reserve's current quantitative tightening cycle. At the Fed's June and July meetings, investors are expecting at least two more 50 basis-point interest rate hikes.
The Fed kicked off its balance sheet reduction program this week, rolling off about $45 billion of treasuries and mortgage bonds per month. The amount is expected to increase over the summer.
There is no fun until the Fed is done and a negative payroll print is required in 2022. When the stock market didn't perform well until the Fed pivoted towards a lesshawkish stance, 1974 and 1981 were highlighted by the bank.
The era of tech leadership in global stock markets is over because of quantitative easing.
If high-yield credit recovers its recent weakness and shows signs of strength, that would be a sign that the credit markets are unlikely to seize up like they have during prior economic recessions, which would change BofA's bearish view on the stock market.
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