Analysts at Bank of America are highlighting the possibility of a brief decline in the S&P 500, even as the index typically benefits from strong seasonal performance in December and the potential for a rally toward the 6180 range.
The bank emphasized that the overall trend for the S&P 500 remains positive, anchored by key support levels between 6025 and 5985. However, they pointed to signals from Demark indicators that suggest a near-term pullback could be on the horizon.
“Daily Demark signals, including a ‘9’ on December 4 and a ’13’ on December 5, indicate potential exhaustion in the S&P 500’s recent upward momentum. This raises the likelihood of a short-term dip before the typically strong Santa Claus rally period in late December and early January,” the analysts explained.
The bank warned that as long as the index remains below certain critical levels specifically 6063, 6116, and 6167 the risk of a tactical pullback persists. Last week’s Demark signal further supports the cautionary outlook for the near term.
Despite these short-term concerns, Bank of America maintains a positive long-term view. They highlighted robust market breadth as a key factor underpinning continued growth, alongside improving investor sentiment. As individual investors reevaluate previously bearish positions, this shift could fuel further gains.
Moreover, the report noted that sentiment remains far from overly bullish, leaving room for the market to climb higher. In particular, growth stocks are showing strong leadership, and mega-cap equities may experience a sharp acceleration akin to the “melt-up” seen during the 1990s, outpacing other large-cap stocks.
While risks remain, the broader outlook suggests a supportive environment for the S&P 500 to maintain its upward trajectory into the new year.
