Fourteen out of 19 signposts that Bank of America Merrill Lynch is watching for a bear market have now been triggered.
After this threshold was reached in the last seven market cycles, it has taken 21 months on average to hit a stock-market peak, and returns average 30% until the peak.
BAML observed that investors, particularly active fund managers, are flocking towards low-quality stocks with the highest levels of debt.
One signpost that’s yet to be triggered is a yield-curve inversion.
Fourteen down, five to go: that’s the status update on Bank of America Merrill Lynch’s signposts for the next bear market in stocks.
The latest signal was triggered by the recent outperformance of low-quality stocks — companies with the highest levels of debt and weakest profitability — over high-quality stocks, the firm said in a note to clients on Wednesday.
BAML found that relative to the rest of the market, active fund managers were the most invested in low-quality stocks. “Since we began to track large cap fund holdings in 2008, managers have been increasing their tilts towards expensive, large, low dividend yield and low quality stocks,” Savita Subramanian, the head of US equity and quant strategy, …read more
Source:: Businessinsider – Finance