FOLLOW US

Bank of America's bull-market indicators suggest that stocks haven't reached bottom yet, as less than half have been triggered so far, analysts said in a Friday note. 

Of the bank's 10 consistent signposts of a bull market, only four have flashed as of Friday. In the last seven prior market bottoms, however, eight or more of those signals were triggered, the analysts said.

As of this writing, indicators point to the US economy being in the early stage of a downturn, they added, and the 17% stock jump after June's low was a bear market rally. 

The 10 indicators are categorized into four groups: policy, valuations, macro, and sentiment/technical, according to Bank of America. None of the indicators in the latter two groups have been triggered. 

"The rule is simple: CPI + trailing P/E should be less than 20 ahead of a market bottom," analysts wrote. "Today's sum is 27, (P/E=18.4, CPI=8.5%) and valuations imply 3% CPI based on a longer term historical relationship."

BofA highlighted that the Fed has cut rates before a market bottom during the past seven bear markets, adding that the stocks hit their floor on average 11 months after the first rate cut. But the Fed is still in a tightening cycle and widely expected to deliver another jumbo rate hike later this month.

In their forecast, strategists said stocks will drop and yields will pop as more rate hikes loom. 

"Jackson Hole marked the end of 'Mission Accomplished' summer trade of peak CPI, peak yields, [and expected] Fed cuts in 2023," BofA's Michael Hartnett wrote in the note.