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

The global markets are currently undergoing a correction triggered by external shocks, and investors face two core questions: when will this correction bottom out, and whether the current macro environment is replicating the stagflation nightmare of the 1970s.

On March 7, Bank of America Merrill Lynch’s latest weekly report, “Flow Show,” offered a relatively optimistic but conditional outlook: signs of a bottoming in the correction are emerging, but not yet fully in place; and the 2020s are more likely to experience inflationary prosperity rather than stagflation collapse—provided that geopolitical tensions do not worsen further.

According to analysis by Bank of America Merrill Lynch strategist Michael Hartnett and his team, this correction was jointly triggered by external shocks and overly optimistic sentiment. Currently, some “oversold” assets are showing signs of bottoming, but oil prices and the dollar have not yet signaled a full reversal, and the S&P 500 has not undergone sufficient price cleansing (e.g., falling below 6,600 points).

Meanwhile, the Bank of America Merrill Lynch bull-bear indicator remains high at 9.2, in an extremely bullish zone, indicating that market sentiment has not truly cooled, thus limiting the scope for a rebound.

A piece of news from NVIDIA has also shaken the market: NVIDIA stated that its previously announced $100 billion investment in OpenAI is “not in the plans,” and the current $30 billion financing arrangement may already be the limit. This statement is seen as a potential signal that the exponential growth in AI capital expenditure is slowing down, which could impact technology bonds and the software sector.

When will the correction end? Four conditions, two currently met

Bank of America Merrill Lynch believes that a market correction triggered by external shocks amid overly optimistic sentiment typically requires four conditions to be fulfilled before it can be considered over:

• 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 dollar);
• Fourth, genuine price cleansing occurs.

Currently, the first two conditions are preliminarily evident. Fund flow data confirms this judgment: this week, gold experienced the largest weekly outflow since October 2025 ($1.8 billion), while the energy sector saw the largest weekly inflow in history ($7 billion), as investors are “chasing into” previously overbought sectors. However, oil prices and the dollar have not yet shown clear signs of decline, and the S&P 500 has not undergone sufficient price correction.

Bank of America Merrill Lynch explicitly states that a significant rebound should not be expected before the dollar trend becomes clear. The dollar index is the best indicator of global liquidity—if the dollar decisively breaks above 100, it will mean a deepening “liquidity peak” theme, further reducing expectations of rate cuts in 2026 (market probabilities for a Fed rate cut on June 17 have fallen from 100% on January 1 to 37%), and may trigger flattening of the yield curve and inflationary oil shocks.

From fund flow perspective, this week saw the largest outflow from U.S. stocks in six weeks ($13.9 billion), while Japanese stocks experienced the largest weekly inflow since October 2025 ($4.2 billion). Korean stocks were highly volatile, with a record single-day inflow of $6.1 billion on March 2, followed by a record single-day outflow of $4.7 billion on March 4.

Will the 2020s replay the stagflation scenario of the 1970s?

This is one of the most debated macro narratives in the current market. Bank of America Merrill Lynch’s stance is: The 1970s is the closest historical reference for the 2020s, but they are not entirely equivalent, and under baseline scenarios, the 2020s are more likely to experience inflationary prosperity rather than stagflation collapse.

The logic supporting inflationary prosperity is clear: political populism (non-establishment votes in the UK election jumping from 27% in 2024 to 69% in 2026), reversal of globalization through tariffs and immigration policies, excessive fiscal expansion, Federal Reserve policy compromises, and the “too big to fail” nature of stocks fueling asset and wealth inflation.

These factors collectively create inflationary pressure, but government intervention will suppress bond yields, ultimately manifesting as a weaker dollar rather than a sharp rise in long-term interest rates. In this scenario, commodities, real assets, international stocks, and small caps are the main beneficiaries.

However, the history of the 1970s remains a warning. Merrill Lynch has outlined the full context of that period:

2. From 1970 to 1972, Nixon’s government created prosperity through aggressive fiscal and monetary easing, with stocks rising over 60%;
3. From 1973 to 1974, runaway inflation combined with oil shocks, causing stocks to plummet 45%;
4. From 1975 to 1976, after the first wave of inflation receded, assets rebounded, with small caps and value stocks replacing the “glamour stocks” as new leaders;
5. From 1977 to 1980, the Iranian Revolution triggered a second wave of inflation, with stocks falling another 26%, until Volcker’s tightening finally ended the cycle.

In the current context, Merrill Lynch believes the key variable is Iran. If the conflict is short-lived and oil prices stay below $90/barrel, the inflationary prosperity narrative holds, benefiting commodities, emerging markets, and small caps after the dollar bear market resumes. If the conflict prolongs (e.g., Strait of Hormuz blockade, Iran attacking regional oil infrastructure), pushing oil prices above $100–$120/barrel, asset allocation will tilt toward oil, the dollar, U.S. tech, and global defense, with energy-import-dependent markets like Japan, Korea, and Europe under heavy pressure.

Looking at the asset performance “puzzle” from the 1970s, gold and commodities nearly always ranked among the top performers during stagflation cycles, while stocks and bonds showed mixed results. This historical pattern is already reflected in today’s market—since 2026, oil prices have risen 30%, gold up 18.3%, commodities overall up 22.6%, while the S&P 500 has barely increased by 0.3%, and Bitcoin has fallen over 16%.

NVIDIA abandons $100 billion deal, cracks appear in AI capital expenditure story

This week, NVIDIA announced that its previously planned $100 billion investment in OpenAI is “not in the plans,” and the current $30 billion financing arrangement may already be the last. This statement has far-reaching market implications beyond the deal itself.

Bank of America Merrill Lynch notes that the peak in software ETF prices coincided precisely with NVIDIA’s announcement of the investment in September 2023. Now, NVIDIA’s withdrawal is a potential early warning sign that the exponential growth in AI capital expenditure is slowing.

Once this trend is confirmed, it will serve as the best catalyst for reversing two major trades: one is “shorting tech bonds” (represented by widening Oracle CDS spreads); the other is “long semiconductors, short software” (the “AI reverence > AI poverty” logic).

Merrill Lynch emphasizes that the bottoming of the software sector is crucial because it is highly correlated with private credit and bank loans. This week, bank loan funds experienced their largest outflow in three months ($900 million), and the bank loan ETF (BKLN) approached a “credit event” critical zone. Strategists believe that holding the software ETF above $80 and the bank loan ETF above $20, maintaining the February lows, are key technical supports for market stability.

It is also worth noting that the Merrill Lynch bull-bear indicator remains in the extreme bullish zone at 9.2, signaling a sell. The global fund manager survey shows that emerging markets, European stocks, and bank stocks are still severely underweighted, implying that further market declines could lead to significant selling pressure on these assets.

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