A new bull market in stocks won't take off until 3 key factors improve, RBA says

• The new bull market won't take off until three things improve, RBA said.
• The firm pointed to the importance of profits, liquidity, and sentiment when evaluating bull markets.
• Stocks won't begin a bullish trajectory until at least one of those factors improves, the firm added.

There are three key factors that need to improve for stocks before a new bull market takes off, according to Richard Bernstein Advisors.

The advisory firm pointed to the S&P 500's strong performance this year, with the index having rallied around 19% since its low of 3,600 in October 2022.

Those gains have led some commentators to call the start of a new bull market — but that likely isn't the case until key catalysts show improvement, RBA said.

Those include liquidity, corporate profits, and investor sentiment and valuation — which are the most important factors when determining overall the momentum of the market, the firm added.

"While it is certainly possible for this rally to evolve into a full-fledged bull market, historical precedent suggests it is far from a foregone conclusion," RBA's deputy chief investment officer Dan Suzuki said in a report on Monday. "Ultimately, rallies need fundamentals in order to bloom into bull markets."

The latest rally in stocks comes at a precarious time for the US economy, with investors eyeing a potential recession on the horizon. Higher rates have hit firms with more expensive borrowing costs, lowering liquidity and putting pressure on corporate earnings. That's part of the reason why the S&P 500 lost 20% in 2022, notching its worst performance since 2008.

Other Wall Street experts have warned of more trouble ahead for stocks, particularly as investors brace for a potential recession. Even a mild recession could have the market tumbling 15%, according to JPMorgan strategists.