The S & P 500 has already tumbled into correction territory — down more than 10% from a record high set in early January — and there's a decent chance things could get worse from here, according to Bank of America. Stephen Suttmeier, the firm's technical research strategist, wrote in a note Friday that an S & P 500 correction has turned into a 20%-plus drop 35% of the time. A drop of 20% or more in the broad-market index is used by many on Wall Street to define a bear market. The strategist pointed out, though, that 20% declines happen less often during secular bull markets. Such drawdowns have only taken place in 2020, 1987, 1962 and 1957, Suttmeier said. The S & P 500 officially entered correction territory on Feb. 22, when it ended the day more than 10% below a closing all-time set Jan. 3. Pressure on stocks has increased this year, as the Federal Reserve gets ready to raise rates to quell a surge in U.S. inflation. Investors have also dumped risky assets like stocks, as the war between Russia and Ukraine intensifies and pushes commodity prices higher. To be sure, Suttmeier said, "We remain secular bulls on US equities even in the face of the 2022 correction." The firm's equity and quant strategist, Savita Subramanian, also noted in a separate report that "much of the froth has been taken out" of the market, suggesting stocks could start regaining some lost ground. However, the near-term outlook for stocks remains uncertain, especially with how fickle investor convictions are currently, Suttmeier said. "Bullish and bearish convictions are shifting daily. Sometimes hourly," he said, adding that investors should keep an eye on the 4,200 level in the S & P 500. "As the correction from early January continues, the SPX has seen big rallies and big drops on a daily basis around the 4200s, but neither the bulls nor bears show true capitulation based on NYSE 90% up and down days. … Until proven otherwise, this is the recipe for continued churn in for US equities."
A Trader on the floor of the NYSE, March 11, 2022.