Bank of America says this is a 'normal' correction and the bull market is 'alive and well'

Published Fri, Sep 11 20208:20 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

(This story is for CNBC Pro subscribers only). The market shakeup over the past week has been a healthy one in a historically week month, and the secular bull market is still "alive and well," Bank of America said in a new note. The U.S. market fell again on Thursday for its fourth negative day in five. The slide over the last week has been led by tech stocks, as the sell-off chopped off some of their recent gains and briefly pulled the Nasdaq Composite into correction territory. But a closer look at the internal shifts in the markets shows that there is not a reason for alarm, Bank of America said. "While some may herald this as a long-overdue correction six months after-the-fact, a view of sector rotation shows evidence of a healthy market with a normal tactical correction," the note said. September is historically a rough month for markets, and this year has lived up to that reputation so far. The performance of some of the lagging industries in August, however, showed that the bull market was on solid footing as it ran into seasonal headwinds, the bank said. "August saw the cyclical sectors of Industrials and Financials perform better than the S & P 500 on both an equal weight and market cap basis. If this rally were nearing its end, we would expect underperformance from these two groups," the note said. Similarly, the recent sell-off has been most damaging to high-flying tech stocks, but cyclical names have held up better and there has not been a rush to defensive names. The note said that a surge of outperformance from utilities and real estate sectors could be a cause for concern, showing strength for defensives. "While we've seen deterioration in the performance of market leaders, we have simultaneously seen signs of stabilization from cyclicals such as Industrials and a lack of outperformance from defensives. In essence, this all aligns to support our tactical risk, bullish backdrop message," the bank said. Bank of America said that seasonality could be playing a role for the individual sectors, with September typically being a relatively weak month for tech and a relatively strong month for telecom stocks.

A pedestrian outside the New York Stock Exchange in New York, July 29, 2020.

Wang Ying | Xinhua News Agency | Getty Images

(This story is for CNBC Pro subscribers only).

The market shakeup over the past week has been a healthy one in a historically week month, and the secular bull market is still "alive and well," Bank of America said in a new note.

The U.S. market fell again on Thursday for its fourth negative day in five. The slide over the last week has been led by tech stocks, as the sell-off chopped off some of their recent gains and briefly pulled the Nasdaq Composite into correction territory.

But a closer look at the internal shifts in the markets shows that there is not a reason for alarm, Bank of America said.