Market Insider

'Twilight zone' market could see big correction: Strategist

VIDEO1:3201:32
Pisani: Breakout or breakdown?

Stocks have entered what could be viewed as a "twilight zone," marked by volatility, "flash crashes" and just moderate returns until the economy improves enough for the Fed to hike rates, according to Bank of America Merrill Lynch strategists.

They remain bullish on stocks, but expect a rocky period where investors are trapped in a transition period while the markets sort out whether the coast is clear for the central bank to proceed on rate increases. There is also a risk the market could react to the prospect of rate hikes with a violent selloff.

BofA Merrill Lynch's chief investment strategist, Michael Hartnett, said there's even the potential the market will behave the way it did in 1987 and 1998, "where you've got basically a very sharp midcycle correction rather than the onset of a bear market."