Investors could continue to see “pain” in the markets before the “Big Low” is reached in 2023, according to Bank of America.

Strategists at the bank wrote in a note on Friday that Thursday’s huge turnaround and jump in equities was a “bear hug,” calling it a “decent counter-rally, but ultimate lows ain’t seen yet.”

They also noted that those who followed the traditional 60/40 portfolio rule have seen their annualized returns sink 34.4% this year, the worst in a century.

Instead of allocating 60% broadly to stocks and 40% to bonds, many professionals now advocate for different weights and greater diversification.

However, the strategists added that even the more defensive “permanent portfolio” of 25% each in cash, commodities, stocks, and bonds dipped 11.9%, the most since 2008.

Watching the Fed

The bank said looking ahead, it’s important to watch actions by the Federal Reserve, because a “Fed panic” could be a condition for equity markets to bottom out. 

The strategists advised that when the market lows are hit next year, the best contrarian moves for investors would be to be long the 60/40 portfolio and short the U.S. dollar.