Stock market 'melt-up' coming soon: Bank of America

Stock-market returns 'to be front-loaded in 2020'

The stock market is spring-loaded for a big start to 2020, according to strategists at one Wall Street bank.

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The market is “primed for Q1'2020 risk asset melt-up,” Bank of America strategists Michael Hartnett and Tommy Ricketts wrote in a Dec. 12 note, pointing to receding risks from the trade war and Brexit.

The strategists expect “returns to be front-loaded in 2020” with the S&P 500 surging more than 5 percent to 3,333 by March 3 and the yield on the 10-year note climbing by 35 basis points to 2.2 percent by Feb. 2.

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They point to the bank’s recent Global Fund Manager Survey, which showed cash levels of less than 4 percent, strong global growth and profit expectations and an elimination of tail risk from the trade war as confirmation of outright bullishness.

A strong start to the year would be a repeat of 2019. Last year, the benchmark S&P 500 rallied 11.8 percent through March 1, recouping all of the losses that occurred during its worst December since the Great Depression.

Traders James Riley, left, and Mark Muller work on the floor of the New York Stock Exchange, Monday, July 22, 2019. U.S. stocks moved higher in early trading Monday on Wall Street as investors snapped up technology stocks. (AP Photo/Richard Drew)

Bank of America’s call goes against the grain of what typically happens in an election year.

The Wells Fargo Investment Institute found U.S. equity prices are typically flat in the first six months of an election year before clarity on the winner drives action during the second half.

“The difference has tended to be stark, depending upon whether the incumbent party seems likely to ‘keep’ the White House,” the institute wrote.

They say the stock market is “stronger than average” when the incumbent wins but stumbles in the second half if the challenging party takes the White House.

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As for 2020 as a whole, Bank of America’s equity and quant strategy team, led by Savita Subramanian, has a 2020 year-end target of 3,300.