S&P 500 Likely to Decline, Bank of America Warns

Bank of America has raised concerns about a potential pullback in the S&P 500, highlighting historical patterns that suggest the broad market index is overdue for a decline. Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Securities, noted that since 1936, the S&P 500 has typically experienced a pullback of 5% or more three times a year, with a 10% correction occurring annually. She emphasized that the current market conditions indicate "elevated downside risk in coming months." Despite these warnings, Subramanian does not foresee a full-blown bear market, as key macroeconomic indicators have not yet signaled significant threats. She projects that the S&P 500 will finish the year at 5,400, slightly below its recent close of 5,459.10. This outlook is supported by a review of macro triggers that have historically preceded peaks in the S&P 500, with only 50% of these indicators currently activated, compared to an average of 70% before previous peaks. Additionally, Subramanian pointed out that the CBOE Volatility Index, known as Wall Street's fear gauge, typically experiences a spike of about 25% from July to November during presidential election years. This trend further underscores the potential for increased market volatility in the coming months. Historically, dividends have played a significant role in the S&P 500's total returns, contributing around 40% from 1936 to 2010, but only 15% since then, indicating a shift in market dynamics.