There's a great bull market right around the corner in 2023, even as investors hoard cash at the highest rate since the pandemic began, BofA says

According to a Friday note from Bank of America, a great new bull market is set to form in stocks in 2023.

Small-cap stocks are poised to lead the market higher over the next year and a half.

The dynamics of the stock market have historically favored smaller, more local companies.

According to Bank of America's Michael Hartnett, there will be a small cap bull in the years to come.

During the high-inflationary period of the 1970s, he observed that the near two-decade long trend of the Nasdaq 100 was starting to roll over in a big way.

tagflation continued through late-1970s but once inflation shock of 1973. One of the great bull markets of all-time was the US small cap stock market.

The profits of smaller companies are more insulated from government taxes and the trend of globalization favors the smaller group. He said that small-cap stocks are less affected by inflation.

Hartnett believes that small-cap out performance will begin at the beginning of a recession. Since 1936, the long-term returns for US small-cap stocks have been higher than for large caps.

While small caps present a big opportunity for investors, few are positioned for the move due to the fact that investors are holding cash at a rate note since the start of the pandemic in March 2020.

Over the past week, $62 billion flowed into Bank of America, and so far this quarter $194 billion has flowed into cash funds.

The real bull market is likely to be found in small caps as investors focus on finding the bottom in the large-cap darlings that worked so well over the past decade.

Bank of America