The stock market is getting very close to a point that would trigger a policy response, BofA's Hartnett says

If the stock market drops much further from here, it’s likely to trigger a policy response from the White House and the Federal Reserve, Bank of America chief investment strategist Michael Hartnett said. The market has held up fairly well this year in the face of heightened headline risk. The S & P 500 has shed just 2.8% for 2026 and is off roughly 5% from its peak as of midday Friday. However, with oil prices soaring and a protracted war with Iran threatening global stability, Hartnett said it probably won’t take much more before the administration or central bank step in to head off further damage. In fact, Hartnett said in his weekly report on money movement in the market that a drop in the large-cap index to below 6,600 — only about 1% from Thursday’s close — would provoke “war/oil/Fed/tariff policy response to short-circuit Main St risks.” .SPX 1M mountain S & P 500 trend Hartnett further suggests investors fade a handful of other trades including a further stock market drop: oil over $100 a barrel, the U.S. dollar index above 100, and the 30-year Treasury yield above 5%. As of midday Friday, Brent crude, the global oil benchmark, was just over $100 a barrel ; the dollar index traded around 100.3 and the long bond was yielding 4.9%. “Corrections end when ‘oversold’ trough,” Hartnett wrote. He contends that software, bank loans and bitcoin all have hit a trough, while the Magnificent Seven stocks and private credit have not. At the same time, a number of classes he considers overbought, including gold, semiconductors, metals, emerging markets, European and bank stocks, are selling off. Safe haven assets such as oil and the dollar are not getting a bid as such, he added. “This sequence is playing out which means liquidation pressures should soon ease if policymakers respond; if this trading call wrong, policy panic levels don’t hold,” he cautioned. Potential policy responses could include a de-escalation of the war, a further retreat from tariffs, or easing action from the Fed such as interest rate cuts or bond purchases.