The Standard & Poor’s 500 Index may lose as much as 10 percent from current levels given the market’s tendency to give back some gains after a “strong” rally, according to Bank of America Corp.’s Mary Ann Bartels.
The benchmark measure of U.S. equities jumped 29 percent between Oct. 3 and April 2, when it closed at 1,419.04. The index has since declined to 1,390.69. Bartels said in an April 24 note that one-third to one-half of the six-month advance could be lost, pushing the index down to 1,250 or 1,300. The report came out before the S&P 500 surged 1.4 percent yesterday.
“We’re in a correction,” Bartels, the New York-based head of technical and market analysis at Bank of America, said in a phone interview yesterday. “We’re starting to get sell signals on our intermediate indicators.”
Equities stalled this month after the S&P 500 jumped 12 percent in the biggest first-quarter rally since 1998. The benchmark index started this month by declining for two straight weeks for the first time since November as consumer confidence dropped, China’s growth slowed and the cost of insuring against a Spanish default rose to a record.
Industries such as consumer staples, telecommunications and utilities have fallen too much as investors favor more “defensive” industries, Bartels said. Stocks driven by the economy, including materials, energy and industrial shares, have fallen out of favor, pointing to a potential “deeper pullback” for the U.S. equity market, she said.
“The market is still staying away from commodity-sensitive cyclicals,” Bartels said. “As long as that continues, that means the market is more likely to go down.”