(Bloomberg) -- Stock markets will suffer in the first quarter of 2024 as a rally in bonds would signal sputtering economic growth, according to Bank of America Corp.’s Michael Hartnett.

The strategist — who has remained bearish even as the S&P 500 rallied about 19% this year — said lower yields were one of the main catalysts of equity gains in the current quarter. However, a further drop toward 3% would mean a “hard landing” for the economy.

The narrative of “lower yields = higher stocks” would flip to “lower yields = lower stocks,” Hartnett wrote in a note dated Dec. 7.

A rally in US stocks has just about stalled this month after one of the best November gains in a century, as investors consider when the Federal Reserve is likely to start cutting interest rates. The US 10-year bond yield has retreated to about 4.2% after hitting 5% in late October, the highest since 2007.

The next clue on the rates outlook is likely to come Friday from US jobs data, with Bloomberg Economics expecting it to show that the unemployment rate edged higher in November as the economy began to slip into a recession. Hartnett said that if payrolls were to rise by less than 100,000, that would be another signal of a hard landing.

Sentiment indicators are also no longer supportive of further gains in risk assets, Hartnett said. BofA’s custom bull-and-bear signal surged to 3.8 from 2.7 in the week through Dec. 6, its biggest weekly jump since February 2012. A reading below 2 is generally considered to be a contrarian buy signal.

Hartnett’s bearish outlook contrasts with BofA’s own quantitative strategist Savita Subramanian, who expects the S&P 500 to rally to a record high next year on cooling inflation and corporate efficiency. Forecasters at Deutsche Bank Group AG and RBC Capital Markets also predict an all-time high for the index in 2024. Morgan Stanley’s Michael Wilson — one of Wall Street’s biggest bears — has a more neutral outlook.

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