Bank of America says sell-off has more to go, but S&P 500 will eventually rebound to 3,630 preelection

Published Fri, Sep 4 20208:04 AM EDTUpdated Fri, Sep 4 20209:32 AM EDT

(This story is for CNBC Pro subscribers only.) The fast and furious tech equity rout could have further to go in the coming weeks before the market eventually rebounds ahead of the U.S. presidential election, according to Bank of America's chief investment strategist Michael Hartnett. The widely-followed strategist said the swift pullback reflected investors' "impatience" toward delayed fiscal stimulus at a time that the economic recovery has reached its "peak." However, the sell-off shouldn't last too long — Hartnett believes with the Federal Reserve's unprecedented support, the S & P 500 will bounce back to 3,630 before November, which would mark a 5% rise to a new record high. Harnett told clients to buy the Nasdaq Composite at 11,000, which is about 4% lower than Thursday's close of 11,458.10. The tech-heavy benchmark dropped 5% on Thursday alone, dragged down by an 8% decline in Apple shares. The S & P 500 tech sector suffered its biggest one-day loss since March, snapping a 10-day winning streak. Futures on the Nasdaq 100 pointed to more losses on Friday. Hartnett said the sell-off might have been inevitable given how stretched some of the major tech names were — the popular FAAMG stocks ( Facebook , Apple, Amazon , Microsoft and Alphabet ) were 41% higher than their 200-day moving average at one point, according to Hartnett. The market has come a long way since the coronavirus sell-off in March caused the fastest bear market in history. The S & P 500 has jumped more than 60% from its March bottom to overtake its previous record. The market's epic comeback rally, led by major tech shares, came on the heels of unprecedented fiscal and monetary stimulus. "Historic policy shift underway at Fed, willing to let financial assets overshoot to a. stoke employment & wages, b. finance fiscal excess; market knows Fed will 'intervene' to prevent < 1% Treasury yield which has allowed SPX multiple to break 20x," Hartnett wrote in the note. Hartnett called the global central banks' easing programs "operation warp speed" as $1.4 billion of financial assets was purchased every hour since the Covid-19 lockdown in March. That massive stimulus has coincided with a $1.6 billion increase in Nasdaq 100's market cap every hour. Going forward, the key catalyst for the market to rally further is more fiscal stimulus as well as a viable coronavirus vaccine, the strategist said. "Fiscal the secular game-changer for rates & inflation & asset allocation; 2021 and beyond lower, more volatile returns, and big outperformance of inflation assets; vaccine belief is missing catalyst for start of yield rise and end of tech dominance," Hartnett said.

A child wearing a face mask sits on the Charging Bull statue, also known as the Wall Street Bull, following the outbreak of the coronavirus disease (COVID-19) in New York, August 19, 2020.

Carlo Allegri | Reuters

(This story is for CNBC Pro subscribers only.)

The fast and furious tech equity rout could have further to go in the coming weeks before the market eventually rebounds ahead of the U.S. presidential election, according to Bank of America's chief investment strategist Michael Hartnett.