US stocks can avoid a dire outlook as long as bond yields stay below a historic high of 5%, according to Bank of America Corp. strategist Michael Hartnett.

The strategist — among the more bearish voices on Wall Street — said the S&P 500 index can continue to trade above 4,200 points in the near term in such a scenario. A drop below that level would be driven by a stronger dollar, higher yields, oil rising above $100 a barrel and “clear signs” that a credit crunch for small businesses was causing higher unemployment, Hartnett wrote in a note dated Oct. 12.

The 4,200 mark is also close to the benchmark index’s 200-day moving average, considered a key technical support level that traders use to assess whether the longer-term trend is up or down. The S&P 500 dropped close to it in early October as US bond yields surged to their highest in 16 years. The index has since rallied 2.8% as yields retreated, and is now tracking its second weekly advance in a row.

For 2024, Hartnett said the “best bullish shout” was that a recession and rate cuts by the Federal Reserve would drive gains in bonds and gold, as well as a broader stock market rally. The strategist has remained bearish for 2023 overall even as the S&P 500 has surged 13%.

With money market funds still seeing annualized inflows this year at $1.4 trillion, investors need to see an economic contraction as well as rate cuts to “sell cash” and “ignite new bulls,” the strategist said.

This article was provided by Bloomberg News.