Bank of America warns of year-end risks for the S&P 500: Upward momentum is narrowing, deep pullback could reach 10%.

Paul Cianna, technical strategist at Bank of America Securities, stated that the S&P 500 index remains in a solid upward trend as it enters the final weeks of the year, but deteriorating market breadth and historical analogies suggest that the index may still see a potential pullback of up to 10%. In his report on November 14th, Cianna noted that the index has stayed within the upward channel and continues to find support around the 50-day moving average (currently near 6700 points). If this support holds, favorable seasonal factors from November to December could push the S&P 500 index to 7040 points (+3%) or 7115 points (+4%). If a repeat of the unusually strong year-end pattern from 1980 occurs, it could result in a gain of about 6.5%, potentially approaching 7280 points. Cianna stated that the bank maintains a bullish stance after reaching the summer target of 6625 points and continues to recommend hedging profits at index highs. He pointed out that the several volatile movements in October and early November have reinforced the value of tactical hedging until participation in the uptrend broadens. However, warning signals are still apparent: despite continual record highs for the S&P 500, multiple indicators of market breadth have shown weakness - an increase in stocks hitting 52-week lows and a decrease in stocks trading above major moving averages. Cianna noted that the momentum of the market's uptrend is narrowing, and added that if the 50-day moving average is breached, it could deepen the probability of a pullback. Key support levels are at 6631 points, the range of 6570-6551 points, 6360 points, and 6200 points. Seasonal trends favor "upside", but sector rotation is needed Cianna stated that year-end seasonal rallies have historically been strong. In the first year of a presidential cycle (such as 2025), when the index maintains an uptrend through October, the probability of gains in November and December reaches 92%, with an average increase of nearly 5%. However, he believes that for this pattern to materialize, market-leading sectors must rotate into areas that typically outperform at year-end. Consumer discretionary, healthcare, industrial, and materials sectors (all exhibiting strong characteristics in November) can help broaden market participation. In contrast, the technology sector has historically lagged in December, with a probability of gains at only 54%. Cianna concluded that the upward trend of the S&P 500 index remains intact, but narrow participation in the uptrend and historical references indicate that downside risks still exist. If market breadth improves and leadership sectors diversify, seasonal forces will help drive year-end performance. He warns that a breach of the 50-day moving average would be a significant signal of a potential pullback starting in the fourth quarter of 2025 to the first quarter of 2026.