(Bloomberg) — Bank of America Corp.’s Michael Hartnett predicts that the S&P 500 may experience a further 5% decline after dropping below a crucial technical level this week.
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According to Hartnett, a renowned bearish voice on US stocks, the breach of the 4,200-point mark suggests that the index could continue to slide until it reaches the 200-week moving average at 3,941. This level is historically known to provide long-term support and has prevented previous market routs, except during the dot-com bust, financial crisis of 2008-2009, and the 2020 Covid pandemic.
The benchmark index closed at 4,137 on Thursday, only just falling short of confirming a technical correction. Traders are currently evaluating the move below 4,200, which is close to another significant level for the gauge – the 200-day moving average. This assessment will help determine the direction of the longer-term trend.
Read more: S&P 500 Teeters on Brink of Correction as Technicals Break Down
US stocks have been experiencing declines for the past three months due to concerns over rising bond yields caused by the Federal Reserve’s continued hawkish stance. More recently, geopolitical tensions in the Middle East and underwhelming corporate earnings have further dampened risk appetite. The technology-heavy Nasdaq 100 confirmed a correction on Thursday after falling over 10% since its peak in July.
In a note, Hartnett highlights that demand for tech stocks remains high, as evidenced by the $2 billion inflow recorded in the sector during the week ending October 25. This marks the largest addition in eight weeks and indicates that investors are taking advantage of the market dip.
Global stock funds experienced outflows of $2.1 billion, according to EPFR Global data cited in the note. Cash funds received $29.2 billion in inflows, while bond funds attracted $2.2 billion. European funds, however, faced a 33rd consecutive week of outflows, totaling $2 billion.
Throughout the year, Hartnett has maintained a bearish outlook on stocks, even during the first half when the S&P 500 experienced a rally.
–With assistance from Michael Msika.
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