Bank of America Analyst Predicts Tactical Correction for Stocks
Stocks are struggling once again, prompting Bank of America’s chart analyst to suggest that a “tactical correction” is currently underway. Stephen Suttmeier, the technical research strategist for Bank of America Securities, believes that this correction may continue for a bit longer due to the historical seasonal weakness expected in the upcoming period.
In a note released on Tuesday, Suttmeier highlighted that the S&P 500 had recently tested the target for the summer rally at 4580 and encountered chart resistance at 4590-4637 in late July. Since then, the index has corrected and entered a less robust period of seasonality. Suttmeier suggests that if the tactical resistances mentioned above contain interim rallies on the S&P 500, then a seasonal corrective phase should persist from the late July high.
The S&P 500 has experienced a sell-off on Tuesday, resulting in a 3% decline from its 52-week high, with a low of around 4465. However, despite this setback, the benchmark index is still up by 16% for the year. It’s important to note that a correction on Wall Street typically occurs when a security retreats by 10%. However, in this case, Suttmeier is not necessarily predicting a drawdown of that magnitude.
Suttmeier identifies key support levels of 4,450, 4,325, and 4,200 that could potentially trigger more selling if violated by the S&P 500. A pullback to 4,200 would represent an 8.8% decline from the top. Furthermore, historical data on the benchmark index in relation to presidential elections indicates the possibility of continued weakness. According to Suttmeier, the third year of the election cycle, which we are currently in, has historically shown solid returns through July but lackluster performance from August to December.
Bank of America’s data reveals that the S&P 500 typically remains flat in August and experiences a 1.08% decrease in September, on average, during the third year of the presidential cycle. Considering these trends, the report suggests that investors may benefit from adopting a more defensive approach and rotating into utilities and staple sectors in the short term.
