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Highlights:
The S&P 500 has historically performed well in early November during presidential election years, with average returns of over 1%.
Bank of America strategists suggest a potential "relief rally" due to the current oversold condition of market sentiment, as indicated by the VIX.
Key support levels for the S&P 500, including the 50-day moving average and Demark level, could help maintain the bullish trend from July to September.
Bank of America (NYSE:BAC) strategists are forecasting a potential “relief rally” for the S&P 500 as the index enters a historically strong period in presidential election years. According to a note published on Monday, the S&P 500 has shown notable strength during the first 10 days of November in election years, with an average return of over 1%. This period has consistently been one of the most favorable, with the index recording the third-highest average return of any first or last 10-day period in election years.
The strategists also highlighted the current oversold condition in the market, using the VIX3M/VIX ratio, which measures market fear. With the ratio currently below 1.0, similar conditions have been observed before rallies in past presidential election years, such as in 2016 and 2020. This suggests a potential upside in U.S. equities, particularly as the market heads into the final stretch of 2024.
Despite a pullback from its mid-October highs, the S&P 500 is maintaining a pattern that could support continued bullish momentum. The index remains above key support levels, including the 50-day moving average and a Demark level, both of which are seen as potential indicators that the upward trend from the summer and early fall could remain intact. If these levels hold, the index could move toward further gains, with levels ranging from the mid to high 5900s and possibly reaching into the 6000s by year-end.
Bank of America also noted that long-term price momentum, as measured by the 28-month Williams %R, suggests the S&P 500 may remain overbought through the remainder of the year. Historical trends show that when this indicator has been overbought, the index has continued its strong performance into the final months of the year, with average returns between 4.9% and 6.8% during the November-December period.
Given these factors, strategists are positioning the S&P 500 for potential gains in the final quarter of 2024, with the possibility of the index reaching higher levels as the year concludes.
