Wall Street's most accurate analysts: The U.S. stock market is in a correction rather than a bear market. Focus on six key bottoming signals; this year's "BIG" strategy is the way to go!

Recently, the US stock market has experienced severe fluctuations, with the S&P 500 index dropping 8% in the past month, and investor concerns about the outlook for US stocks are increasing day by day.

In this regard, top Wall Street analyst and Bank of America strategist Michael Hartnett discussed his market judgment in a recent report: The current decline in the US stock market is not the beginning of a bear market, but merely a "dumb correction."

He suggested that investors should pay attention to six key signals to determine whether the adjustment has ended, which are: Bank of America FMS cash levels, global growth expectations and stock allocation, BofA bull-bear indicator, global stock fund redemptions, BofA global stock breadth index, and US high-yield bond spreads.

In the face of the adjustment, Hartnett does not recommend shorting US stocks, but instead recommends buying when the S&P 500 drops to 5300 points, at which point the BofA FMS cash level may exceed 4%, and the high-yield bond spread will be close to 400 basis points, with accelerated capital outflows. He also reiterated the "BIG" strategy, which is to hold bonds, international stocks, and gold for the long term until 2025.

It is worth noting that Hartnett successfully predicted the market's top signal previously. As early as the end of December last year, he warned that Bank of America's sell signal had been triggered, indicating that the market was about to peak. The subsequent market performance validated his judgment, as the US stock market underwent a rapid adjustment, declining 10% within 20 days, marking the fifth-fastest adjustment speed in the past 75 years (the fastest was at the onset of the COVID-19 pandemic, taking only 8 days).

"Dumb correction" rather than a bear market, six signals to determine when the adjustment ends

Despite successfully warning of the market adjustment last time, Hartnett has made it clear this time that the current decline in US stocks is not the beginning of a bear market, but just a correction, and he reminds readers:

"When policymakers start to panic, the market will stop panicking."

Since a bear market in the stock market signals an economic recession, he believes that further declines in the stock market will prompt a shift towards loose trade and monetary policies to avoid an economic downturn. Historical experience shows that the S&P 500 index around 5300 points will be a good buying opportunity. At that time, the Bank of America FMS cash level will soar above 4%, the high-yield bond spread will be close to 400 basis points, and stock fund outflows will also accelerate.

However, Hartnett also warns investors that the current market trend of "yields and stocks falling in sync" is concerning, resembling the situations before market crashes in 2000, 2002, and 2008, indicating that the market may still face pain.

He suggests paying attention to the XBD broker-dealer index, as a drop below 750 points will be an important bear market signal.

Hartnett proposed six key signals to help investors determine when this round of "fool's adjustment" will end:

1. Bank of America FMS cash level rises to >5%: When the Bank of America FMS cash level rises above 5%, or increases by 60 basis points within 1-2 months, it will trigger a "buy signal." If the March global FMS (released on March 18) shows that the cash level has risen from 3.5% to over 4.1%, it will end the "sell signal" triggered in December, indicating that this round of adjustment is nearing its end. (Note: The Bank of America global FMS cash rule "sell signal" was triggered on December 17, after which the "seven giants" fell by 20%, the Nasdaq dropped by 14%, the S&P 500 index fell by 9%, the MSCI global index decreased by 5%, and the MSCI EFA index rose by 6%.)
2. Bank of America FMS global growth expectations and stock allocation decline significantly: Bank of America FMS global growth expectations (which were -2% in February) and global stock allocation (which was +35% in February) decline by more than 20 percentage points within a month.
3. Bank of America bull-bear indicator falls to 2: The Bank of America bull-bear indicator falling from the current 5.2 to 2 will trigger a "buy signal."
4. Global stock fund redemption wave: Global stock fund redemptions approach about 1% of assets under management (AUM) (equivalent to $200 billion outflow in 2025, while inflows year-to-date are $156 billion).
5. Bank of America global stock breadth index falls sharply: The Bank of America global stock breadth index falls to -60% (meaning that 60% of the market stocks in the MSCI global index components are trading below the 200-day and 50-day moving averages). This index is currently at +27%.
6. Significant widening of U.S. high-yield corporate bond spreads: The U.S. high-yield corporate bond spread widens from 340 basis points by 150 basis points to 400 basis points.

Hartnett summarized that this year, the positioning strategy of "stocks up, yields up, dollar up" has been severely hit, but sentiment, positioning, and price signals indicate that the stock market adjustment has not yet ended. Therefore, he advises investors to buy the S&P 500 index at 5,300 points when signals such as "Bank of America FMS cash level soaring above 4%, high-yield bond spreads approaching 400 basis points, and accelerated stock fund outflows" appear.

U.S. Stock Market "Nominal Prosperity" May Have Peaked, 2025 Investment Strategy: "BIG" is the New King

Hartnett believes that U.S. nominal GDP has grown an astonishing 50% over the past five years, but this is largely unsustainable. Trump's base prefers a smaller government and low inflation, which means that the factors that once drove market prosperity are reversing.

Therefore, this week Hartnett doubled down on the "BIG" strategy:

The overall situation is that the era of U.S. "nominal GDP prosperity" is coming to an end, and investors should turn their attention to the "BIG" strategy, which stands for Bonds, International markets, and Gold

• Long Bonds: Hartnett recommends going long on 30-year U.S. Treasuries, betting on a bull flattening of the U.S. yield curve. He believes that the significant decline in U.S. government spending (which grew 65% to $7 trillion over the past five years and 12% over the past 12 months) signals the beginning of a "U.S. government recession." Both "investment" and "consumption" are also facing downward pressure, while U.S. inflation remains above 3%, which means the Federal Reserve cannot preemptively cut interest rates in H1, and a decline in bond yields will become an automatic stabilizer for economic growth.

• Long International: Hartnett is optimistic about global stock markets, believing they are undervalued and have catalysts. The forward P/E ratio for the UK stock market is 12 times, for China it is 13 times, for Europe and emerging markets it is 15 times, while the U.S. is as high as 21 times. In terms of geopolitics, the end of conflicts like the Russia-Ukraine war, the switch from war to peace, is unfavorable for the U.S., which is dominated by technology and defense and is energy independent, but favorable for mercantilist, oil-dependent Asia and Europe. Regarding the Chinese market, he believes the emergence of DeepSeek indicates that China is not lagging in the AI race, and the market capitalization of China's BATX (Baidu, Alibaba, Tencent, Xiaomi) still has significant room to catch up with the "Seven Giants" in the U.S. In the European market, the corporate bond yield spread in Europe has now fallen below that of the U.S. for the first time since 2021, indicating that the market believes Europe will achieve stronger nominal growth through fiscal stimulus.

• Long Gold: Hartnett believes that in the context of a weakening dollar, gold is the best tool to hedge against trade wars and the collapse of real interest rates. The peak of "American exceptionalism" may also mean the dollar has peaked. Whether it is a second wave of inflation or the Federal Reserve being forced to cut rates significantly, both could lead to a collapse of real interest rates, and gold is the best hedge against both scenarios. Additionally, gold is the best safe-haven asset to counter a full-scale trade war.

Overall, Wall Street's most accurate analyst Hartnett believes that the current U.S. stock market is undergoing a "fool's adjustment," rather than the beginning of a bear market. Investors should closely monitor the six key signals he proposed to determine when the adjustment will end. In terms of investment strategy, this week Hartnett continues to vigorously promote his "BIG" strategy, which is to go long on bonds, international markets, and gold, rather than U.S. stocks