Bank of America is Betting Against This Rally: Here’s Why They Might Be Right and What You Should Do About It

Bank of America is Betting Against This Rally: Here’s Why They Might Be Right and What You Should Do About It

Posted On May 19, 2020 1:08 pm

S&P 500 and Dividend Kings Phoenix Portfolio Companies Since March 23rd 

(Source: Ycharts)

The red hot market rally off March 23rds lows continues with no signs of slowing down.

The S&P 500 is now up 32% in six weeks and individual companies, such as those that the Dividend Kings Phoenix Portfolio was buying aggressively in late March, are up far more.

After the fastest bear market in history, and the most volatile month for stocks ever (March) it sure feels good to see our portfolios leaping higher, sometimes by 12% in a single week.

But one of the best investment teams in America just sounded the warning about this rally ending relatively soon. In fact, Bank of American is now officially tactically bearish on stocks in the short-term.

Let’s look at why, and what you should and shouldn’t do to protect your portfolio in the coming weeks.

The 4 Reasons Why Bank of American is Bearish On Stocks

On May 15 Bank of America’s Research Committee has officially become “tactically bearish” on stocks citing four reasons they think a 10% correction might be coming soon.

  1. “A second wave of coronavirus outbreaks is a real risk, and the markets are not pricing in that risk.”
  2. “Investors are “flying blind,” given that more than 30% of S&P 500 companies have withdrawn forward-looking earnings guidance…the ratio of positive vs. negative sentiment on corporate earnings calls is the worst since 2012, making valuation and fundamental investing harder than ever.”
  3. “There’s a growing disconnect between Main Street and Wall Street, evidenced by the S&P 500 rallying 30% as more than 36 million Americans lost their jobs. This disconnect will only fuel a rise in populist politics ahead of the November election.”
  4. “The greatest risk” to equities, according to the analysts, is Congress being too slow to pass additional stimulus measures, especially with the congressional budget coming into focus this spring. More stimulus is necessary because “when companies and households are saving, only public spending can end a recession.” If Congress stalls, “a big market correction to 2,650 may be necessary to focus” its mind.”

It’s hard to argue with BAC Investment committees facts or reasoning, especially that stocks appear to be ignoring some of the worst economic data in history.

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Photo: “Brooklyn Street Scenes – Bank of America on Fulton Mall on a Rainy Winter Night” by Steven Pisano is licensed under CC BY

About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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