Bank of America's "bull-bear" indicator suggests the market is extremely pessimistic, and the bear market may end in October

The S&P 500 officially entered a bear market on June 13, marking the 20th bear market the index has experienced in the past 140 years. In the crypto market, Bitcoin plummeted by more than 60% as the Federal Reserve's hawkish rate hikes and the collapse of several crypto companies hit market sentiment in the second quarter.

Meanwhile, the financial market sentiment gauge known as the "Bull-Bear" index calculated by Bank of America continues to show extreme pessimism in the market. On June 17, the index hit 0 for the first time and remained at that level for four consecutive weeks. Pundits agree that a bear market is marked when an index falls about 20% from its most recent all-time high, and throughout history, bear markets have lasted an average of 289 days. According to analysts at Bank of America, although history is not a perfect predictor of the future, the current bear market may end on October 19, 2022.

Bank of America strategists led by Michael Hartnett wrote in a client note: “In 2Q22, commodity gains slowed (8.4% vs. 35.0% in 1Q)…”Inflation shock” consensus, USD surged (6.9%), government bonds lost sharply (-9.5%), cryptocurrencies lost sharply ( Bitcoin – 58.1%)…”Rate shock” kicks in, with accelerated losses in credit (HY -10.9% vs. -6.0%) and equities (-14.6% vs. -5.3%)…”Recession shock” kicks in; key asset prices H2 = recession depth given “credit shock” and geopolitical risk”.

The pessimism was best reflected in outflows, with analysts saying global outflows from stocks had reached $5.8 billion, outflows from bonds had reached $17 billion, and another $1.1 billion had flowed out of gold.

Hartnett stressed that while expectations for Fed rate hikes have peaked, inflation expectations have not peaked. Hartnett also reminded clients that the odds of a recession are rising.

As the global macro environment becomes volatile, the correlation between cryptocurrencies and other risk assets continues to strengthen.

Fabio Ackeret, a trader at Crypto Finance AG, said he doesn’t see a breakout in the crypto market anytime soon. “To see a crypto breakout to the upside, all recent events need to settle (UST, Celsius , 3AC),” he wrote in a note on Friday.

Crypto investor sentiment appears to have eased, with the Bitcoin Fear and Greed Index reaching 20 on July 8, the highest position it has reached in the past two months.

According to a report published by Arcane Research, the indicator is approaching the “fear” level after being at the “extreme fear” level for a long time. “Crypto market sentiment has been depressed for several months, but this week we have seen a slight improvement,” analysts wrote.