Analysts at Bank of America have mentioned that stocks have dropped in the past few days amid worries about the US budget outlook. They mentioned that the S&P 500 are overbought and will likely pull back again soon, noting that a drop is an opportunity for investors to buy.
On May 16, the S&P 500 hit a TD Combo sell signal, a technical sign that a short-term fall may follow. The analysts wrote on Wednesday that its relative strength index, a tool that measures how fast prices are moving, also points to a pullback. “The S&P 500 isn’t moody, just a little overbought and wary of rates. Dip due, buy it,” they said.
According to a business insider report, Bank of America sees support for the S&P 500 at about 5,580, roughly 5% below its current level. If stocks slide to that point, buyers will get in at a lower price. On the upside, analysts expect the index to rise back toward 6,000 to test its record high and even reach 6,266 later this year.
Bank of America urges investors to buy stocks amid drop
According to the Bank of America, there are only two things that could push the price of stocks higher. First, the market’s path looks a lot like what happened from 2015 to 2018, closely after the presidential election. At that time, stocks gained about 7% before peaking.
Back then, the S&P 500 later fell around 10% in 2018 from its post-election peak. “If this plays out in 2025, the SPX could hit 6,266 this summer. As Newton’s third law says, for every action there is an equal and opposite reaction,” the analysts wrote.
Second, there is an increasing number of winning stocks as compared to losing stocks. Over 50% of S&P 500 stocks now trade above their 200-day simple moving average, a sign that gains are spreading across the market.
So far this month, the S&P 500 is up, wiping out its losses from the start of the year. However, it has slipped over 1.6% today and has been since last Friday, when Moody’s cut its U.S. debt rating and raised fresh worries about the growing budget gap.