An indicator with a perfect track record shows stocks haven't bottomed yet - and markets shouldn't rule out a hard landing, BofA says

According to Bank of America, one sign post that has a perfect track record indicates that stocks have more room to fall.

When the market bottomed, the sum of year-over-yearCPI growth and trailing P/E has always been below 20 according to analysts. Right now, it's sitting at 28.6, with P/E at 20 and the latest consumer price index showing an 8.5% gain.

The bottom is not in yet according to other indicators.

"Only 30% of our bull market signposts (things that happen before a market bottom) have been triggered vs. 80%+ in prior market bottoms, suggesting that another pullback is likely," BofA analysts wrote.

BofA Global Research

Fed rate cuts, rising unemployment, the Sell Side Indicator flashing a buy signal, and a steepening yield curve are some of the additional indicators that occur before a market bottom.

The Rule of 20 is the only data point that has shown up at every market bottom since 1974.

If inflation falls to zero or the S&P 500 falls to 2500, an earnings surprise of 50% would be required to satisfy the Rule of 20.

The note states that the combination of lower rates and equity risk premium suggests that markets are expecting a soft landing.

The bank's analysts warned that a Fed-caused hard landing shouldn't be counted out.