(March 14): The slump in US stocks is a technical correction rather than the beginning of a new bear market as it’s likely to prompt policy intervention, according to Bank of America Corp’s Michael Hartnett.

The strategist recommended buying the S&P 500 at 5,300 points, a drop of another 4% from Thursday’s close. He said that level would indicate the selloff is over if it’s accompanied by more stock outflows, a surge in fund managers’ cash levels above 4% of assets under management and a widening in US high-yield corporate spreads to 400 basis points.

“We say this is a correction, not a bear market in US stocks,” Hartnett wrote in a note. “Since equity bear threatens recession, fresh declines in stock prices will provoke flip in trade and monetary policy.”

The S&P 500 has plunged 10% into correction territory since a February peak on worries that President Donald Trump’s policies will tip the economy into recession as he threatens a global trade war. The technology-heavy Nasdaq 100 has dropped 13% on fears around lofty valuations.

A bear market is defined as a 20% drop from a recent high.

With inflation showing signs of easing, all eyes are on the Federal Reserve’s policy decision next week, although swaps traders aren’t currently pricing in another rate reduction until June.

Uploaded by Magessan Varatharaja