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According to Bank of America, the transition from a bear market to a new bull market is often marked by three clear signs.
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“On average, a major market low occurs once a decade, and investors need to be proactive in identifying buy signals,” BofA said.
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Detailed below are three buy signals that investors should follow to identify when to buy a stock for the next bull market.
The transition from a bear market to a new bull market is often marked by three clear signs, giving investors the opportunity to identify the right time to buy a stock.
That’s according to a Tuesday note from Bank of America, which identified signs that investors should watch after the Nasdaq 100 surged 20% from its 2022 low to officially mark the start of a new bull market rally.
And there’s good reason why investors should pay attention. Post-recession returns averaged 21% annually, compared to only 9% when buying at any given time, according to the note, based on an analysis of 16 bear markets since 1871.
“On average, a major market low occurs once a decade, and investors need to be proactive in identifying buy signals,” BofA said. “Good indicators for market downturns should be reliable, reflective of the economy, and relatively fast-moving.”
That’s why it doesn’t pay investors to follow the official NBER recession determination, as it can take anywhere from 4 to 21 months to trigger after a recession has officially ended.
“The NBER announced in July 2021 that the 2020 recession ended in April 2020. An investor who waited for official confirmation would have missed 80% of the post-Covid rally.
Instead, investors should follow these three reliable signs that, when flashed, suggest the next bull market in stocks has arrived.
1. Earning Down
“The year-over-year percentage change in S&P 500 Trailing Earnings is typically lower in months when the market is supported,” BofA said.
And according to the bank, more pain is yet to come on the earnings front, suggesting that the bottomline has yet to be found in stocks.
“A simple estimate using surveys of manufacturers and credit managers indicates a 7% decline in S&P 500 earnings, which is similar to our equity team’s -9% forecast,” BofA said. “The S&P 500’s Earnings Slowdown Is Yet To Come.”
Bank of America
2. 10 Month Moving Average
“The 10-month moving average is a pure value metric. The S&P 500 index price reliably crosses its 10-month average after four months of major market bottoms. The S&P 500 broke above that threshold in January this year Gone, but we will, BofA said, adding it shouldn’t be surprising to see it slide down again if the economic situation worsens.
The 10-month moving average currently sits at around 3,970, or roughly 120 points below the S&P 500’s current price of 4,098.
Bank of America
3. Peak Unemployment Rate
BofA said, “The unemployment rate typically peaks four months after a major decline. The bear market of the recession in 1962 is an exception. Our economists expect a peak of 4.8% in the second quarter of 2024, down from 3.6% today.” % Is.” “Peak unemployment is one of the best ‘all-clear’ signals.”
A wave of job layoffs is on the way for the unemployment rate to rise, and it hasn’t happened yet.
If investors wait for the three signals to flash, it’s almost certain they’ll miss the initial leg of the rally lower, but BofA says that’s okay.
“Investor confidence should increase as these indicators begin to signal a recovery. Waiting four months after a market bottom usually means giving up about 15% of the early stage rally. This is due to increased confidence in the position. A relatively small price to pay for >300% returns until the next market peak,” BofA said.
Bank of America
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