Investors have three reasons to be bullish on stocks for the next few months, Bank of America said in a note published on Wednesday.
The firm pointed to the economic surprise index hitting record highs and said “we are still in the phase where consensus underestimates the rebound in data.”
BofA also thinks the rise in new COVID-19 cases over the past month lowers the probability and severity of any second wave of infections.
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Investors have three reasons to be bullish on stocks “at least for the next few months,” Bank of America said in a note published on Wednesday.
The note comes the same day JPMorgan highlighted three reasons to stay bullish on stocks, and a day after the S&P 500 posted its best quarter since 1987.
Here are Bank of America’s three reasons to stay bullish on US stocks:
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1. “The US is detecting a lot of new COIVD-19 cases.” While this may seem counterintuitive as a reason to like stocks, according to Bank of America, the recent rise in COVID-19 cases over the past few months “lowers the probability/severity of any second wave of infections.” The bank said that significant progress has been made in testing and it is encouraging that there has yet to be an associated spike in hospitalizations despite the recent jump in COVID-19 cases, suggesting that the young are bearing the brunt of the current increase.
2. “US economic data continues to come in better than consensus.” BofA said the second reason to stay bullish on stocks is that the Citi economic surprise index, which hit a record low at the end of April, “is now by far and away the highest on record.” While economic data may come in bad, it may come in not as bad as investors expect, and that’s a reason for stocks to move higher.
3. The surprise in economic data should flow through to corporate earnings. The bank said investors should go through a similar phase with economic data as they do with second quarter corporate earnings, which are just around the corner. “Clearly investors expect to see horrific numbers overall, but why would the better than expected economic outcome not also flow through to at least better than feared corporate earnings,” BofA said. Companies should be excited to guide the positive trends they are seeing in the second half of the year, according to the bank.
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In addition to giving three reasons why it is bullish on US stocks, Bank of America said in a separate note published on Wednesday that stocks could rise 11% within a year after its sentiment indicator spiked the most in two years.