It is still too early to call a bottom in the S&P 500 as cuts in earnings estimates are just getting started, Bank of America says

• The S&P 500 has come off its June lows but the time still hasn't arrived to call a bottom, Bank of America said Monday. 
• "We need more EPS cuts" in order to call a bottom, said chief US strategist Savita Subramanian. 
• The S&P 500 whittled down this year's correction to 13% with July's surge. 

The  S&P 500's surge in July cut the magnitude of its correction but a bottom can't be called with estimates for corporate earnings still elevated and set to come down, Bank of America said Monday. 

The benchmark index soared 9.1% in July, fronted by a 17% surge in the consumer discretionary sector that's been beaten down for much of the year as investors worry about the impact of hot inflation on consumers and the potential for a recession. The monthly gain marked the index's best performance since November 2020. 

The monthly advance helped cut the S&P 500's loss this year to roughly 13%, recapturing the 4,100 level. The index has been steadily rising since hitting a low of 3,639.77 on June 16. 

Second-quarter earnings from S&P 500 companies over the past three weeks have logged a "solid beat" of 3%, with reports in from 71% of index companies, Bank of America said in a research note. Estimated per-share earnings of $56.87 were above the consensus projection of $55.35. 

"Overall, results were better than feared, especially with more above-consensus guidance than below, which was the biggest positive surprise. But we are still in the very early innings of downturn and estimate cuts," Savita Subramanian, head of US equity strategy at BofA, said in the note. 

"Was June low the big low? Our bull market signposts say no," she wrote. "We need more EPS cuts". 

The strategist said the S&P 500 during the prior five recessions bottomed after earnings estimates were revised down, except in 1990 when forward EPS remained flat when the market bottomed. 

"But today, estimate cuts are just starting and forward EPS is still up 7% since the market peak," said Subramanian, also noting that 30% of signs of historical market bottoms have been triggered compared with more than 80% before prior bottoms. 

"Moreover, bear markets always ended after the Fed cut, which likely is at least six months away, in the third quarter of 2023," Subramanian wrote. 

A rise in the US unemployment rate and improvement in PMIs versus respective 12-month lows are on a list of indicators needed to be checked off for a market bottom to form, the investment bank said. 

The US July payrolls report is due on Friday, with Econoday's consensus estimate standing at the addition of 250,000 jobs and a 3.6% unemployment rate.