Fade S&P 500 Above 4200 as the End Game is Below 3600 – BofA Strategist

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Bank of America’s Chief Investment Strategist has once again reiterated his stance that the ultimate low in the S&P 500 is yet to be seen.

Despite the benchmark index trading near 4200, which has been seen as a key bull/bear line in the near-term, the strategist told clients to fade the S&P 500 above this level.

“Still think end-game 3600>SPX; next big short (up in yields, down in tech) once stagflation returns Q4/Q1,” he said in his weekly note to clients.

On what investors can expect in the coming weeks, he added:

“Sentiment still bearish (though shorts have covered) + no FOMC ‘til Sept 21st…rip lower next 4-weeks requires “v hot” data (e.g. July payroll >400k, U-rate drops to 3.7%) mean recession risk-off as stocks (esp tech) “catch-down” to inverted yield curve.”

Thus, the focus remains on inflation with BofA economists seeing both core CPI & PCE at around 5% YoY in Q1’23.

“For headline CPI to fall back below 5% in Q1’23 requires monthly print to drop from 0.9% to 0.1-0.2%,” the strategist further added.

As far as weekly flows are concerned, the week to Wednesday saw an $11.7 billion inflow to bonds while outflows from stocks and cash were $2.6 billion and $4.1 billion, respectively.

In the meantime, Bank of America’s Bull & Bear Indicator remains at 0, signaling extreme bearishness.