One of the biggest arguments for buying stocks over the past decade is getting obliterated by soaring cash yields, BofA says

• The argument that "there is no alternative" to buying stocks has been obliterated this year as cash yields soar.
• "A 4% cash yield provides a real alternative to stocks, justifying lower multiples," Bank of America said.
• The bank estimates there's only a 20% change the stock market has fully priced in a recession.

Over the last decade a big argument for buying stocks was the fact that interest rates were at rock bottom, leaving few alternatives for investors.

But now, the "there is no alternative", or TINA, argument for stocks is getting obliterated.

That's because cash yields — or risk-free returns on short-term Treasury bonds — are soaring as the Federal Reserve continues to hike interest rates, Bank of America's Savita Subramanian said in a note on Friday.

The Fed has hiked interest rates by 225 basis points so far this year, and next week he's expected to raise rates by another 75 basis points. All-in, investors currently expect the Federal Funds Rate to stand above 4% by the end of the year, according to the CME FedWatch Tool.

While some have argued that the Fed needs to pause its interest rate hikes because of underlying damage to the economy, Subramanian suggests history shows that it's better for the Fed to be overly cautious about rising inflation in the long-term.

"Lessons from the 1970's tell us that premature easing could result in a fresh wave of inflation, and that market volatility in the short-run may be a smaller price to pay," Subramanian said.

With everything from stocks, to bonds, to crypto, to gold falling substantially this year, Subramanian's argument may resonate with a lot of investors, especially considering that uncertainties have skyrocketed amid Russia's war on Ukraine, surging oil prices, and depressed consumer sentiment.

"A 4% cash yield provides a real alternative to stocks, justifying lower multiples versus [the] last decade with TINA," Subramanian said. A 4% risk-free rate of return from short-term treasuries doesn't sound awful when the S&P 500 is down nearly 20% year-to-date.

And given that inflation remains stuck around 8%, the S&P 500 could continue its decline because its forward price-to-earnings multiple of 16.7x is "far too high," Subramanian said. "Stocks are cheaper, but still not cheap."

Subramanian estimates that there's only a 20% chance that the stock market has fully priced in an economic recession. "We remain bearish," Subramanian said.