Zhitong Finance noted that after setting new highs for several consecutive weeks, the S&P 500 index suffered its worst trading day since 2022 on Wednesday.

Stocks began a broad recovery Thursday amid a sell-off in technology shares, which analysts say are common during bull markets, including stock swings and sector shakeouts.

But Bank of America calls today's situation a different kind of market - a buffalo market - which is still a bull market. But unlike a bull market, it may be feeling tired after a strong rally.

“It may roam, it may roam through the summer,” said Marci McGregor, head of portfolio strategy at Merrill Lynch and Bank of America Private Bank. “But at the end of the day, what gets the buffalo back to a normal bull market is the fundamentals.”

The bank expects the market to move higher this year based on factors including earnings, investment cycles, financial conditions, interest rates and generative AI.

“We think the fundamentals are in place to allow the uptrend to continue,” McGregor said . “But you may get some bumps in the road.”

Volatility is expected to rise around the election

Election years also tend to be accompanied by different market patterns. McGregor said investors may feel volatility in the market from July to November. Once the election is over, there may be a bigger direction in November and December.

As a result, Bank of America expects U.S. stocks to end the year higher than they are now, she said. These patterns tend to hold true regardless of the outcome on Election Day.

The bank believes that in order to better predict the next government's investment situation, it is wise to pay more attention to policies rather than politics. The policies actually implemented will have a greater impact on sectors, industries and companies than which political party is elected.

McGregor said the current earnings recovery after the earnings recession in the first half of last year is a more important factor to watch. "Ultimately, I think it really comes back to earnings," he said. "That, in my opinion, is the real catalyst for the next round of market volatility, more so than the election."

Don't hold too much cash

Higher interest rates imposed by the Federal Reserve have provided cash with its best returns in years. However, experts have begun to say some investors may be making the mistake of holding too much cash.

“There’s risk in being underinvested,” said Callie Cox, chief market strategist at Ritholtz Wealth Management.

Similarly, McGregor said she has begun warning clients that the current high returns on cash are not always available and that sitting back and watching the market gain will bring risks. Bank of America expects the Federal Reserve to start cutting interest rates this year, with the first cut coming in September, followed by another cut in December.

For investors committed to long-term goals, exiting the market could have lasting, lifelong effects. McGregor said this is especially true because the market has risen more than 60% since October 2022.

“If there’s a pullback and the market pauses and clients don’t hit their target allocations, we look at that as a buying opportunity,” she said.

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