S&P 500’s Red-Hot Rally Nears Sell Signal—BoFA Sounds the Alarm
The S&P 500's relentless surge might be its own undoing. Bank of America warns the index is flirting with a sell signal—just as Wall Street starts popping champagne.
When the bulls get greedy, the algos get nervous. BoFA's indicators suggest the rally's living on borrowed time—classic case of 'buy the rumor, sell the news' in a market that's forgotten what risk looks like.
Another day, another overbought signal ignored. Traders betting on infinite liquidity might want to check the calendar—it's 2025, not 2021.
Fresh trade war risks
The S&P 500 has had a stunning past few weeks, with a notable stocks bounce in May seeing the benchmark index hit new record highs as it closed at 6,279.35 on Thursday. Major U.S. indices advanced on better-than-expected payrolls data before markets closed for the July 4 Independence Day holiday.
Although upward momentum may persist into next week, analysts caution that a continued rally could place the S&P 500 on the edge of a sell signal.
This outlook coincides with renewed concerns over trade policy, as President Donald Trump’s recent tariff remarks have brought trade war risks back into focus. With the 90-day tariff pause nearing its end, some investors are adopting a more cautious stance.
Hartnett suggests that if the current Optimism holds and the S&P 500 surpasses the 6,300 mark in the coming weeks, a period of selling could be imminent.
As well as the extended rally, BoFA strategists say bubble risks are growing, particularly after Congress approved Trump’s ‘One Big Beautiful Bill’ – a policy and tax bill featuring a $3.4 trillion package.
S&P 500 near “bubble or burst” scenario
According to Bank of America researchers, the market is approaching a critical juncture they describe as a “bubble or bust” scenario. In their assessment, the likelihood of the S&P 500 rallying to 7,000 this summer outweighs the probability of a sharp decline to 5,000.
“Overbought markets can stay overbought as greed is harder to conquer than fear,” Hartnett wrote.
The bank also reported that investors funneled more than $56 billion into money market funds last week, while bonds attracted over $20 billion in weekly inflows through July 2.
Equities recorded net inflows of $2.2 billion, with gold attracting $1.4 billion and cryptocurrency funds drawing more than $1 billion. The surge into digital asset investment funds came as Bitcoin (BTC) briefly spiked above $110,000 before pulling back below the key psychological level.
