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Bank of America's $2.8 trillion wealth-management chief breaks down how the 9-year bull market will end — and how you can see it coming

chris hyzy

  • Chris Hyzy, the chief investment officer for Bank of America's Global Wealth and Investment Management division, outlines what would have to happen for the nine-year bull market to end.
  • He also highlights three potential signals that could tip off investors to the types of deteriorating conditions that could lead to such a collapse.

The stock market's so-called Red October may have felt like a major gut punch for investors, but it was actually pretty tame compared with the type of meltdown that will one day end the bull market.

So says Chris Hyzy, the chief investment officer for Bank of America's Global Wealth and Investment Management division.

Hyzy notes that while corrections of 10% definitely hurt, they're usually short-lived and relatively harmless in the grand scheme of things. But he views bear markets — defined as declines exceeding 20% — as a different animal. There's something more sinister and deep-rooted about the conditions surrounding them.

As such, when Hyzy is assessing what could derail the ongoing bull market, he's looking far beyond the fleeting headwinds that briefly crippled stocks in October. He's instead focused on the type of jarring economic slowdown that can quickly turn the entire market on its head.

"From my perspective, in order for us to have a bear market that sticks, there has to be something other than a regime shift where you reprice things," Hyzy told Business Insider by phone. "That's what a correction is — a repricing. There would need to be an economic hard landing."

While that may seem like a daunting prospect, Hyzy says there are ways to read the tea leaves and recognize a looming hard landing as it approaches. The key is the yield curve, which looks at Treasury bonds of different maturities in relation to one another.

According to Hyzy, the dreaded hard landing would correspond with an inversion of the yield curve comparing 10- and 30-year Treasurys — a situation in which the nearer-term bonds would be yielding more than their longer-maturity counterparts.

Considering that most hard landings (and recessions) throughout history have been coupled with deep stock losses, a bear market may not be much further behind.

Going beyond a sudden economic collapse, Hyzy is also closely watching oil prices. He says that if the price of West Texas Intermediate crude climbs above $100, and Brent crude rises above $125, that could be another major sign that an equity bear market is near.

After all, it would raise costs for both consumers and companies — hardly an encouraging combination for lasting stock market prosperity. Corporations in particular would find it extremely difficult to keep growing profits in such a scenario.

Hyzy says a third potential signal of a looming hard landing would be if credit spreads were to widen aggressively, especially in the high-yield, low-quality realm.

"When delinquencies and defaults start to go up, then balance sheets start to deteriorate, even though the broader economic landscape isn't showing that yet," he said. "That's where I'd get defensive."

Still, it's important to note that none of these situations are Hyzy's base case. He's particularly skeptical that oil prices will reach the lofty levels he's outlined above.

With that said, it's usually the outcome you're not expecting that throws you for the biggest loop. So traders would be best advised to keep an eye on all the triggers listed above and react accordingly when they start to flare. Because even if conditions seem safe right now, they can change quickly.

"There are pockets of concern that are stirring the pot," Hyzy said. "But unless there's an economic hard landing, and earnings growth goes into a recession, this bull market can continue."

SEE ALSO: The 4 main drivers of market strength are all past their prime — and it's leaving stocks vulnerable to the next big crash

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