Bank of America is urging investors to remain constructive even as the market shows signs of a short-term pullback. Despite a modest retreat in equities, the firm maintains a bullish outlook for U.S. stocks and views any near-term weakness as a buying opportunity.
According to BofA analysts, the S&P 500 appears slightly overbought based on key technical indicators. On May 16, the index triggered a TD Combo sell signal, a pattern often interpreted as a precursor to a short-term decline. Additionally, the relative strength index (RSI) — a widely watched momentum gauge — suggests that equities are due for some consolidation after recent gains.
Still, Bank of America believes these signals point to a healthy pause rather than a reversal of the broader uptrend. “The S&P 500 isn’t moody — just a little overbought and wary of rates,” the bank noted in a recent research report. “A dip is due, but investors should use it as a chance to add exposure.”
From a technical perspective, the firm sees support for the S&P 500 at approximately 5,580, implying a potential 5% decline from recent levels. However, the analysts also forecast a retest of the index’s all-time highs around 6,000, with the possibility of a rally extending to 6,266 in the near term.
Several factors underpin this constructive view:
Historical Patterns
BofA sees parallels between the current market environment and the 2015–2018 cycle, a period that also followed a U.S. presidential election. In that stretch, the S&P 500 posted gains of approximately 7% before peaking. In 2018, the index eventually declined by about 10% from its post-election highs. This year, the S&P 500 has already experienced a more pronounced 20% decline from its post-election top. If history repeats itself, BofA believes the market could surge to 6,266 during the summer months.
The analysts also invoked Newton’s third law of motion: “For every action, there is an equal and opposite reaction.” In market terms, they argue, the correction may pave the way for an equally strong rebound.
Improving Breadth
Market participation is broadening. More than half of the S&P 500’s constituents now trade above their 200-day simple moving averages — a key sign of improving breadth. This dispersion of gains across more sectors and individual names provides a stronger foundation for continued market resilience.
Current Conditions
Despite the recent downdraft — a more than 1% slide since last Friday — the S&P 500 remains up month-to-date. The pullback followed Moody’s downgrade of U.S. sovereign debt, which amplified investor concerns around the country’s ballooning fiscal deficit. However, BofA sees this retracement as temporary and driven more by sentiment than fundamentals.
Overall, Bank of America’s message to institutional investors and advisors is clear: volatility may be back in the near term, but it should be viewed through a long-term lens. With technical support intact, improving participation under the surface, and a roadmap consistent with past election cycles, the firm encourages buying into weakness rather than exiting on fear.
