Bank of America lays out the 6 things that need to happen for the stock-market crash to truly end — and warns only 4 have occurred so far

  • A group of strategists at Bank of America has pinpointed six criteria that typically trigger when a stock market nadir has been reached.
  • According to BoA’s logic, the more signals that have been eclipsed, the better. Today, they say four out of six criteria have been met.
  • They also argue that one variable that’s not on the checklist — new cases of COVID-19 — is possibly the most important caveat to consider.
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With markets in free fall, cases of COVID-19 increasing rapidly, and global economic activity mired in a vicious contraction, investors have been searching for anything that resembles a glimmer of hope amidst the chaos. 

“The violent swings in the equity market reflect the highly uncertain environment we find ourselves in,” a group of Bank of America strategists penned in a recent note. “In an attempt to help investors navigate this brave new world, we introduce a checklist of bull market signals that generally have occurred around the market trough.”

Bank of America’s “Bull Market Checklist” consists of six criteria that are designed to help investors separate meaningful signals in the market from a cacophony of misleading noise. The firm’s strategists assemble different facets of credit, earnings, economic, risk, and sentiment signals for a comprehensive, all-encompassing viewpoint on where markets are trending.

“No single one of these is perfect, and some will probably lag, or not occur at all,” they said. “But the more signals triggered, the greater the likelihood we are at the S&P 500 market bottom.”

Here’s the list of criteria that needs to be met: 

1. The Federal Reserve needs to cut interest rates by at least 50 basis points

2. A 40 percentage point reduction in commercial and industrial lending standards takes place

3. The three-month earnings revision ratio touches or falls below 0.5 before reversing

4. BoA’s “US Regime Indicator” falls below -1 before reversing

5. The Global Financial Stress Index (GSFI) rises above 1.5

6. Cash levels cross above 5% according to BOA’s Fund Manager Survey

Summarized below are which metrics have already been triggered. The following chart shows the BoA’s Bull Market Checklist with green checks indicating which criteria have been met:

BofA US Equity & Quant Strategy, FRB, Conference Board, FactSet, Bloomberg

Adhering to this logic, a market bottom does not yet appear to be in place.

The COVID-19 caveat

With all of that established, the strategists are quick to note that one variable that’s not on the checklist is perhaps the most important: new cases of COVID-19. 

“In a pandemic, new cases matter,” they said. “During the SARS epidemic in 2003, the number of daily global confirmed cases peaked in mid-April, with both the Shanghai (SHCOMP) and Hong Kong (HSCEI) index troughing shortly after.”

They provide the following charts that compare the number of SARS patients to the performance of the Shanghai Composite and Hong Kong index in 2003.


Although the data above is reassuring (as it relates to market recoveries), the strategists aren’t seeing a slowdown in cases in the US. In fact, they think we may follow in Italy’s footsteps — a country that has yet to experience a peak in cases.

“And perhaps Italy serves as a leading indicator for the US, where more aggressive quarantine/social distancing measures were implemented later than in Southeast Asia,” they added. 

If that prognostication turns out to be accurate, a market bottom in the US may be far off. 

The chart on the left depicts the development of COVID-19 cases in Italy and the US. The chart on the right shows global cases juxtaposed against cases in China for context.

CDC, Bloomberg

All in all, it looks as if US markets are inching towards a trough, however, all that may change if a material slowdown in COVID-19 cases fails to occur.

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