‘Too many red flags’: Bank of America analyst warns signs that typically precede a bear market are flashing: report

A Bank of America strategist has sounded the alarm about the stock market, warning that stocks are flashing signals that often herald a 20% correction.

In a note to investors, Savita Subramanian, head of US equities and quantitative strategist at Bank of America, urged investors to “take profits”, warning that she saw “a lot of red flags” in the market. Reports Axios.

“Our bear market indicators — the triggers that typically precede an S&P 500 peak — suggest that additional caution may be warranted. Today, 70% of our signals were triggered, in line with the average observed at previous market tops.”

Subramanian says the guideposts are measures of the state of the market, including investors’ assumption that companies will continue to generate profits at a strong pace in the coming years, as well as easy credit conditions. It also highlights that it sees a very large dispersion in the performance of stocks with high and low P/E ratios, meaning that high-value stocks are rewarded, while low-value stocks are left behind.

“The dispersion was even more pronounced within the technology sector, where the spread between best/worst performing median stocks was +120 (percentage points), the highest level since February 2000, which reached +130 (percentage points) before the market peak on March 24, 2000.”

Meanwhile, Mike Wilson, CIO at Morgan Stanley, said he does not believe the stock market will enter bear territory. “In our view, a correction was inevitable and ultimately healthy if this bull market extended to the end of the year, which remains our baseline,” he says.

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