Bank of America said Friday that the already losing year in stocks is likely to get worse as inflation continues to run hot.
Michael Hartnett is the chief investment strategist at Bank of America Securities.
The stock market went into a tailspin on Friday as Treasury yields went up in anticipation of more interest rate increases by the Fed. On September 21, the central bank is expected to raise its rates. The current fed funds range is 2% to 2.5%.
The August inflation rate was above expectations. Shelter and food costs went up during the month. The Fed has an inflation target.
The 2-year yield rose to 3.9% for the first time since 2007, and the 10-year Treasury yield rose to 3.47 percent, its highest level in 11 years.
"We say new highs in yields are new lows in stocks," said Hartnett. The S&P 500 has lost more than 18% this year.
New lows should be triggered by an earnings shock. The bank pointed out that FedEx dumped its earnings guidance for the year after issuing a profit warning. FedEx's fiscal first quarter volume was softer than usual.
The average peak-to-trough decline was 37.3% in the past. The S&P 500 will end its bear market on October 19 with the index falling 23% from Thursday's close.
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