There's a good chance that stocks build on their face-ripping rally off the lows given all the cash sitting on the sidelines, according to Bank of America.
Savita Subramanian, the bank's head of U.S. equity and quantitative strategy, said equity allocation among BofA clients has dropped by 3 percentage points to 57.1% while cash allocations have risen to nearly 14%. Current cash levels are above a historical average dating back to 2005.
The increase in cash holdings comes even after stocks surged from the lows reached in late March. But given the high valuations in bonds relative to stocks, Subramanian thinks $1 trillion in cash could flow into the stock market.
"The extreme attractiveness of stocks over bonds, particularly as rates have plummeted back to near zero, can be the catalyst for the rotation into stocks, driving the market higher," Subramanian said in a note to clients.
Subramanian pointed out stocks have not been this attractive relative to bonds since the 1950s, noting the S&P 500's dividend yield is roughly three times that of the 10-year U.S. Treasury note. The S&P 500 currently yields 1.94%, according to FactSet, while the 10-year yield sits at 0.66%.
That attractive relative valuation is currently in place despite the S&P 500 rallying more than 35% since March 23. Those gains were sparked by expectations of the economy reopening, massive stimulus efforts undertaken by the Federal Reserve and U.S. lawmakers, along with apparent progress on a potential coronavirus vaccine.
"As the economy enters what our economists forecast as the worst recession in the post war era, the market is telling us not to worry. And it is dangerous to ignore the market," Subramanian said.
— CNBC's Michael Bloom contributed to this report.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.