When will the global market correction end? Will the "2020s market" repeat the stagflation scenario of the "1970s"?

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The global market is undergoing an adjustment triggered by external shocks, and investors are facing two core issues: when will this round of correction bottom out, and whether the current macro environment is repeating the stagflation nightmare of the 1970s.

On March 7, Bank of America Merrill Lynch's latest "Flow Show" weekly report offered a relatively optimistic but conditional view: signals of the end of the correction are emerging, but have not fully materialized yet; and the 2020s are more likely headed for an inflationary boom rather than a stagflationary collapse—provided that the geopolitical situation does not further deteriorate.

According to the analysis by Bank of America Merrill Lynch strategist Michael Hartnett's team, this round of correction was triggered by external shocks combined with over-optimistic sentiment. There are currently signs that some "oversold" assets are bottoming, but oil prices and the US dollar have not yet given a full reversal signal, and the S&P 500 has yet to see a full price washout (such as falling below 6600 points).

Meanwhile, the Bank of America Bull & Bear Indicator remains elevated at 9.2 in the extreme bullish zone, suggesting that market sentiment has not truly cooled and thus the rebound potential is limited.

News from Nvidia also stirred the market: Nvidia stated that the previously announced $100 billion investment in OpenAI is "not in the plans", and the current $30 billion funding arrangement may be the upper limit. This statement is seen as a potential signal of deceleration in the exponential growth of AI capital expenditure, with significant implications for technology bonds and the software sector.

When will the correction end? Four conditions, two achieved so far

Bank of America believes that to end a market correction caused by an external shock under over-optimistic sentiment, four conditions usually need to be met:

First, "oversold" assets bottom out (software, MAGS, private credit, bank loans, Bitcoin);Second, "overbought" assets are sold off (gold, semiconductors, metals, emerging markets, Europe, bank stocks);Third, "safe haven assets" lose buying support (oil prices and the US dollar);Fourth, a real price capitulation occurs.

At present, the first two conditions have initially emerged. Fund flow data confirm this judgment: this week, gold saw its largest single-week capital outflow since October 2025 ($1.8 billion), while the energy sector recorded its largest single-week inflow on record ($7 billion), indicating investors are "chasing" previously overbought sectors. However, oil prices and the US dollar have yet to show significant declines, and the S&P 500 has not undergone a full price capitulation.

Bank of America clearly points out that until the US dollar trend is clear, one should not expect a major market rebound. The US dollar index is the best barometer of global liquidity—if the dollar decisively breaks through 100, it signals the deepening of the "liquidity peak" theme, further compressing expectations for rate cuts in 2026 (the market's expectation for a Fed rate cut on June 17 has dropped from 100% on January 1 to 37%), and may trigger yield curve flattening and inflationary oil price shocks.

From a flow perspective, this week saw the largest outflow from US stocks in six weeks ($13.9 billion), while Japanese stocks recorded the largest single-week inflow since October 2025 ($4.2 billion). South Korean equity flows were extremely volatile, with a record single-day inflow on March 2 ($6.1 billion), followed by a record single-day outflow on March 4 ($4.7 billion).

Will the 2020s repeat the 1970s stagflation script?

This is currently one of the most controversial macro narratives in the market. Bank of America’s position is: the 1970s is the closest historical reference for the 2020s, but the two are not entirely equivalent, and under the baseline scenario the 2020s are more likely heading for an inflationary boom, not a stagflationary collapse.

The logic chain supporting an inflationary boom is clear: political populism (non-establishment parties' share of votes in UK elections surging from 27% in 2024 to 69% in 2026), reversal of globalization by tariffs and immigration policies, excessive fiscal expansion, Fed policy compromise, and asset and wealth inflation caused by "too-big-to-fail" stock markets.

These factors collectively drive inflationary pressure, but government intervention will suppress the rise in bond yields, ultimately reflected as a weaker dollar rather than a surge in long-term interest rates. In this scenario, commodities, real assets, international stocks, and small cap stocks would be the main beneficiaries.

However, the history of the 1970s remains a warning. Bank of America traces the full evolution of that period:

1970 to 1972: the Nixon administration drove an economic boom through aggressive fiscal and monetary easing, with the stock market surging over 60%;1973 to 1974: inflation ran out of control and an oil shock struck, causing the stock market to plunge 45%;1975 to 1976: after inflation’s first wave subsided, assets rebounded, and small and value stocks replaced the “Nifty Fifty” as the new leaders;1977 to 1980: the Iranian revolution triggered a second wave of inflation, with the stock market falling another 26%, ending only when the Volcker shock hit.

Referring to the current situation, Bank of America believes the critical variable lies in Iran. If the conflict is brief, oil prices stay below $90 per barrel, and the inflationary boom narrative holds, commodities, emerging markets, and small caps will benefit when the dollar bear market resumes; if the conflict is prolonged (Strait of Hormuz blocked, Iranian attacks on regional oil infrastructure), oil prices break through $100 to $120 per barrel, and asset allocation will tilt towards oil, the dollar, US tech and global defense, while energy-import-dependent markets like Japan, South Korea and Europe will bear the brunt.

From the asset "puzzle" of the 1970s, gold and commodities ranked among the top in annual returns throughout the stagflation cycle, while stocks and bonds performed inconsistently. This historical pattern has already been mirrored in the current market—so far in 2026, oil prices are up 30%, gold is up 18.3%, commodities as a whole are up 22.6%, while the S&P 500 is up just 0.3% and Bitcoin has dropped more than 16%.

Nvidia abandons $100 billion deal, cracks emerge in the AI CapEx narrative

Nvidia stated this week that the previously announced $100 billion investment in OpenAI is "not in the plans", and the current $30 billion funding arrangement may be the last. The market implications of this statement far exceed the deal itself.

Bank of America notes that the peak in the software ETF price coincided with Nvidia’s announcement of this investment in September 2023. Nvidia’s withdrawal is now a potential early signal of decelerating exponential growth in AI capital expenditures.

Once this trend is confirmed, it will be the best catalyst to reverse two major trades: first, the "short tech bonds" trade (as represented by the widening of Oracle CDS spreads); second, the "long semiconductors, short software" trade (i.e., the logic of ‘AI reverence > AI poverty’).

Bank of America emphasizes that a bottom in the software sector is essential, because it is highly linked to trends in private credit and bank loans. This week, bank loan funds experienced the largest outflow in three months ($900 million), and bank loan ETF (BKLN) came close to the "credit event" threshold. Strategists believe that the software ETF holding $80 and the bank loan ETF maintaining its February low of $20 are key technical supports for current market stability.

It's noteworthy that the Bank of America Bull & Bear Indicator is still in the extreme bullish zone at 9.2, flashing a sell signal. The global fund manager survey shows emerging markets, European stocks, and bank stocks remain heavily overweight—meaning that if the market declines further, the selling pressure on these assets should not be underestimated.

Risk Warning and DisclaimerThe market involves risks, and investment must be cautious. This article does not constitute individual investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any views, opinions or conclusions herein fit their specific situation. Investors are responsible for their own actions. ```