- There are growing signs that a 7% sell-off in the
S&P 500 is imminent, according to a Tuesday Bank of America note. - BofA highlighted rising credit spreads as a potential canary in the coal mine for
stocks . - "Rising credit spreads suggest deteriorating credit conditions as the SPX has embarked on its summer rally," the bank said.
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The S&P 500 is facing a big risk as its summer rally extends into mid-August, Bank of America said in a note on Tuesday.
The bank highlighted rising credit spreads as a big risk for the S&P 500, as it signals deteriorating credit conditions even as the market hits new record highs. The S&P 500 closed at a record high on Monday for the 49th time so far this year, and is up more than 2% over the past month.
"Rising credit spreads suggest deteriorating credit conditions as the SPX has embarked on its summer rally. We view this as a bearish divergence and risk for US equities," the bank said.
Investors have often looked to credit spreads as a gauge investor sentiment in
That's not the only bearish divergence flashing for the
The bank highlighted potential levels of support that may come into play if a sell-off materializes. Those levels include 4,164, which represents potential downside of 7% from Monday's close.
But if the S&P 500 continues to show resiliency and a sell-off doesn't materialize, Bank of America said upside risk for the stock market could include a melt-up to 4,600, representing potential upside of 3% from Monday's close.
With the S&P 500 down as much as 1.5% in intraday trades on Tuesday, Bank of America's downside view for the market could be getting started.