"Defense signal" lit up! Bank of America warns that US stocks will "squat" in the summer: S&P 500 may fall below 7000 points, expected to rebound by the end of the year.

Paul Ciana, a technology strategist at Bank of America, warned that after a strong surge in the first half of 2026, the US stock market may enter a correction phase in the third quarter. Although the bank still believes that the US stock market is likely to strengthen by the end of the year, its technical indicators suggest that investors should prepare for increased market volatility, implement risk control strategies, and expect a tougher summer stock market environment. Bank of America's third-quarter technical outlook report released on June 25 shows that the bank remains cautious on several major asset classes: the US stock market may experience a correction, the US dollar may strengthen against other currencies, and oil prices may fall back to lower trading ranges. Beware of the stock market "squatting": S&P 500 may fall below the 7000-point mark The bank's analysis focuses on the S&P 500 index, which has reached the Bank of America's 2026 target of 7431 points, and after hitting a historical high of 7621 points in early June, it is close to its more optimistic "bubble" target of 7741 points. Ciana believes that factors such as high valuation, weakening momentum indicators, and seasonal market patterns collectively indicate that the US stock market will enter a consolidation or downward phase during the summer. Since the end of May, the bank has been advising clients to increase portfolio hedges during market rebounds and to reassess market conditions later in the year. The technical indicators cited by Bank of America suggest that the recent upward momentum in US stocks may be weakening. The bank believes that the S&P 500 index may experience a correction, or may fall to support levels near 7122 points, or even break through the 7000-point mark. The bank also warns that even if the index briefly rises to around 7741 points to set new highs, it is likely to be a bull trap, with a subsequent weakening trend. A concerning factor is the rapid growth of margin debt, which measures the funds borrowed by investors to purchase stocks. As of May, margin debt increased by 54% compared to the same period last year, approaching levels seen at several major market tops in history. Similar situations occurred before market peaks in 2000, 2007, and 2021. Bank of America stated that while this indicator cannot predict the exact timing of adjustments, if the year-over-year growth rate continues to exceed 60%, the risk of a significant market pullback will significantly increase. "Defense signals" have been lit! Bank of America recommends locking in profits In terms of bonds, Bank of America believes that US bond yields will continue to maintain a wide range of fluctuations. The benchmark 10-year US bond yield has been fluctuating between 3.9% and 4.6% for months, with analysts stating that a clear breakthrough has not yet occurred. While analysts still believe that future yields may rise, they also acknowledge that if current resistance levels continue to be effective, yields may return to the 4% range. In terms of foreign exchange, Bank of America tends to be bullish on the US dollar. The bank continues to be bearish on the Euro, with technical indicators showing that the Euro may fall further against the US dollar in the third quarter. Bank of America judges that the trend of the US dollar index may replicate the uptrend from 2016 to 2018, with a potential for continued strength in the second half of 2026. In the energy sector, Bank of America believes that Brent crude oil has emerged from the sharp fluctuations related to the US-Iran conflict. After experiencing a significant decline and wiping out geopolitical premiums, analysts expect oil prices to stabilize in the range of approximately $65 to $85 per barrel in the second half of 2026. The report points out that there is still a downside risk to oil prices, but there is currently overselling, and there may be a short-term rebound. Although Bank of America is cautious about the short-term trend of the US stock market, it does not rule out the possibility of a year-end rally. Historically, the post-midterm election period in the United States has tended to be positive for the stock market. If the expected summer correction market conditions are fully completed, there is still a chance of a rally at the end of the year. However, at present, the signals from the technical charts lean towards defense: market volatility will intensify, and investors should lock in profits and wait for clearer trend signals before increasing their offensive positions.