Perfect Storm Of Factors Signal 100% Stock Market Rally Could Be Due For Correction

BofA’s latest Fund Manager Survey serves up a dose of reality for those who are overly optimistic about the future as “peak economic boom” is here. With that being said, if history is any guide, the stock market could be nearing a correction. 

Let’s first start with BofA’s Michael Hartnett fund manager survey in which 257 panelists with $749bn in AUM, indicated that growth, profit, and inflation expectations are crashing as a result of what Hartnett dubs the “Peak Boom.” 

So with Wall Street sentiment turning dire as growth, profits, and inflation plunge, the S&P500 has soared 100% from 2020 COVID lows. 

According to Bloomberg, when the S&P500 rises about 100% over the past two decades, the main equity benchmark has usually “fallen at least 10% from its peak in the months or years that followed.” 

We pointed out yesterday that under the market surface, anxiety is building:

The implied volatility in VIX options continues to advance for five out of seven weeks even though VIX has sunk. This has put the ratio VVIX/VIX at a mind-numbing level of 7.5 on Monday, a reading that has preceded market crashes in the last several years. 

Going back to 2017, when VVIX/VIX broke above 8, or near today’s current level, it didn’t end well for stocks.

So peak economic boom, S&P500 rally signals a warning, and VVIX/VIX at levels that warn of a correction – this means Federal Reserve Chairman Jerome Powell at Jackson Hole next week better keep his mouth shut about tapering if he doesn’t want to trigger a market turmoil.