S&P 500 Could Rally Almost 10% From Here, Bank of America's Suttmeier Suggests

© Reuters.

By Senad Karaahmetovic

Bank of America strategist Stephen Suttmeier believes the ongoing rally in the S&P 500 has more room to go after the benchmark index managed to fill in the downside gap from mid-June.

For Suttmeier, this suggests “a downside exhaustion gap, which is a sign that the 2022 correction may be running its course.”

The rally could extend to the declining 13-week MA near 4077 and even to the zone above 4150 that hosts early May breakdown and early June bearish retest points. That would imply a move of roughly 9% from current levels.

However, the strategist still sees room for new lows with 3500 and 3200 in focus for the bears.

“Although filling the mid June weekly gap is tactical bullish, downside projections for SPX bear markets of 20% or more, recession related pullbacks and midterm year corrections coalesce near 3500 and 3200,” Suttmeier told clients in a note.

When it comes to seasonality, Suttmeier has one good and one bad news for investors.

“The good news is that seasonality gets better in July. The bad news is that positive July seasonality is muted in the midterm year of the Presidential Cycle.”

Looking historically, July is the strongest month of the year with an average SPX return of 1.6%.

However, there’s a catch as July has “a mundane average return of 0.66% during the midterm year.”

“Even though July in the midterm year has a lower average return, the SPX is up 81% of the time from 6/30 in the midterm year through 6/30 in Year 3,” Suttmeier concluded.

The S&P 500 fell just over 2% to 3,821.55 yesterday.