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Bank of America’s Hartnett Sees ‘Pain and Exit’ If S&P 500 Dips Below 4,000

According to Bank of America Corp. strategists, a drop below 4,000 index points for the S&P 500 will be a “tipping point,” potentially triggering a mass exodus from equities. Investors have already started fleeing stocks, with outflows from equity funds over the past three weeks adding up to the worst since March 2020, the strategists led by Michael Hartnett said, citing EPFR Global data. The average S&P 500 entry point for the “huge” $1.1 trillion inflows into stock funds since the start of 2021 was 4,274 index points, which means that “pain and exit” requires a drop below 4,000 points, the strategists said in a note on Friday. That’s about 6.7% below the Thursday close.

This year, global stock markets have been struggling as investors are grappling with fears of an outright recession and aggressive tightening by the Federal Reserve in response to surging inflation. According to data compiled by Bloomberg, the main U.S. benchmark is down almost 11% since January, a decline that adjusted for inflation is set to be the worst annual return since 1974. There have been “epic” declines in bonds and stocks in 2022, and strategists compare the current situation to the 1973-1974 period during Richard Nixon’s presidency and say high “inflation means Fed must tighten until it breaks the economy or the market,” the strategists, who have been consistently bearish on equities, said. “Until it does, asset prices must reset lower.”