BofA is watching the 7,100 level after their big S&P 500 call, saying it could mark the first real pain point for the AI-fueled rally if that price hits chart support.
- Bank of America set its S&P 500 target at 7,100, which is 5.1% under the July 2 close. Paul Ciana’s first chart target is 7,122, just 22 points higher.
- Semiconductors broke down ahead of the index, with the SOX losing 6.3% on July 1 and dropping another 5.4% the next day, down roughly 11% over two days.
- U.S. cash equity markets closed July 3 for Independence Day. S&P 500 futures were open again for trading in the Sunday evening session.
Bank of America NYSE:BAC has set a key S&P 500 hedge line for AI bulls at 7,100. That level, held steady in a Tuesday note and mentioned by Fortune on Sunday, sits just 22 points beneath the earliest downside marker from BofA’s Paul Ciana. With the S&P 500 closing July 2 at 7,483.24, that puts the initial risk area close to 5% under the market.
The timing is key since U.S. cash equities haven’t traded since Thursday. NYSE and Nasdaq both had July 3 off for the Independence Day holiday, and normal stock hours kick back in Monday. S&P 500 futures on the CME closed Friday at 5 p.m. ET and will pick back up Sunday at 6 p.m. ET, running each day except for a short break, Charles Schwab’s futures specs say.
BofA isn’t calling for a crash, but it says most of the index rally could be behind us. The bank points to its bear-market signposts and says “speculation is hitting extreme levels.” BofA also warned that high-multiple stocks have surged in a way that’s often followed by a sharp drop in valuations. Fortune
Ciana, BofA’s global head of technical strategy, offered a similar take from a chart perspective. He called the summer setup a “three-wave correction” and warned a small move to a new high around 7,741 could turn into a “bull trap.” In a separate note summary, Ciana wrote, “We see an abc correction for wave 2 unfolding toward 7,122/6,968.” Business Insider
| S&P 500 marker | Level | Distance from July 2 close | Why investors care |
|---|---|---|---|
| July 2 close | 7,483.24 | 0.0% | This is where the market last ended before the holiday |
| BofA year-end target | 7,100 | -5.1% | Fortune quoted this strategy target |
| Ciana first correction zone | 7,122 | -4.8% | Lines up closely with BofA’s 7,100 forecast |
| Ciana lower zone | 6,968 | -6.9% | Chart level cited by InvestmentNews as a bigger drop |
| Ciana downside risk | 6,850 | -8.5% | TipRanks reported BofA flagged this as low-end scenario |
| Ciana “bull trap” line | 7,741 | +3.4% | BofA said this higher mark could trip up bulls |
AI hardware has already seen steeper losses. The semiconductor index slid 6.3% on July 1 and dropped another 5.4% on July 2, according to Reuters. Nvidia Corp NASDAQ:NVDA shed 1.4% on Thursday and SanDisk Corp NASDAQ:SNDK plunged 14.1%. Even so, the index is still up about 78% this year. “Investors are likely taking profits,” Bruce Zaro, managing director at Granite Wealth Management, told Reuters. Reuters
The main index looks steady, but trading tells a different story. MarketWatch reported Invesco S&P 500 Momentum ETF NYSEARCA:SPMO jumped 44% last quarter, only to fall 6.6% in early July. Meanwhile, semiconductor funds like Invesco PHLX Semiconductor ETF NASDAQ:SOXQ lost over 11%.
AI investment is running hot. JPMorgan figures cited by Reuters show five companies, including Microsoft NASDAQ:MSFT, Alphabet NASDAQ:GOOGL, and Amazon NASDAQ:AMZN, plan to spend around $730 billion on capex this year. Nicolas Janvier at Columbia Threadneedle said markets have already “priced in” that these spending levels stick. Garrett Melson at Natixis called the trades “so crowded” that any shift could rattle stocks. Reuters
| Firm or strategist | S&P 500 call | Distance from 7,483.24 | Bias |
|---|---|---|---|
| Bank of America | 7,100 | -5.1% | Sees downside |
| Fundstrat’s Tom Lee | Above 7,700 | At least +2.9% | Bullish |
| JPMorgan Chase & Co NYSE:JPM | 7,800 | +4.2% | Positive |
| Goldman Sachs Group Inc NYSE:GS | 8,000 | +6.9% | Positive |
Wall Street is divided as AI spending both fuels earnings and pushes up the risk of a letdown. Goldman raised its S&P 500 year-end target to 8,000 in late May, Reuters said. Benzinga reported JPMorgan’s main forecast was 7,800, and Fundstrat’s Tom Lee expected the index above 7,700.
BofA’s argument is getting traction from the numbers. Reuters said BofA’s Bubble Risk Indicator is signaling trouble for tech and chip stocks. The Buffett Indicator hit 218% last quarter, just below its record 219%. S&P 500 price-to-sales ran at 3.22, up from its 1.84 average. Oliver Shale at Ruffer said risk measures are “flashing amber,” adding it’s a “fragile setup.” Reuters
Rates are the safer side here. June payrolls rose by 57,000, missing the 110,000 forecast. Traders now see a 55% chance of a Fed rate hike in September, down from 64.1%, according to Reuters. “The report takes the pressure off the Fed for now,” said Adam Sarhan, CEO at 50 Park Investments. Reuters
The focus for investors is technical here. The S&P 500 traded close to 7,483, about 1.3% above its 50-day moving average at 7,385. Terence Gabriel at Reuters said a drop below that moving average could bring support at 7,294, 7,238 and down near 7,000. On the upside, buyers would need to push above 7,530 and 7,578 to counter the BofA summer correction call.
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