- For U.S. stocks, overvaluation risks have lingered ever since President Trump won the White House.
- Analysts at Bank of America Merrill Lynch say the S&P 500 Index could have room to grow another 25% from current levels.
- Recent actions by the Federal Reserve suggest all is not well in the U.S. economy.
Analysts have been sounding the alarm on the U.S. stock market for several years now, but that hasn’t stopped the major indexes from setting new record highs.
The seemingly never-ending market rally is set to broaden in the near term, with the S&P 500 targeting gains of as much as 25% from here, according to strategists at Bank of America (BoA) Merrill Lynch.
S&P 500 Could Hit 3,850: BoA
Technical strategists at Bank of America Merrill Lynch believe the S&P 500 Index could rise as much as 25% to reach 3,850 in the not-too-distant future. From a charting point of view, stocks would need to stage the same type of rally after their last two major downturns in 2015-16 and 2011-12 for such a move to become feasible.
The S&P 500 Index briefly surpassed 3,100 on Tuesday for the first time in history. The large-cap index has returned more than 23% year-to-date. | Chart: Yahoo Finance
Although past performance doesn’t guarantee future success, markets do move in cycles. If the market is currently in a “cyclical consolidation,” as the analysts believe, then a breakout is likely on the horizon.
“History suggests that breakouts from these ranges should be powerful,” the strategists wrote in a note to clients, citing the 3,063 level for the S&P 500.
Last’ week’s push above SPX 3,063 is an uncomfortable breakout for many who viewed the SPX pattern as bearish.