S&P 500 Rally to 6,300 May Trigger Sell Signal

Bank of America strategist Michael Hartnett has issued a warning that the S&P 500's recent rally, which has pushed it to new record highs, could trigger a sell signal if it surpasses 6,300 points. This threshold is just 0.3% above the index's closing level on the previous Thursday. Hartnett's caution comes as the market exhibits signs of speculative fervor, driven by the resilience of the US economy and a shift in the administration's stance on tariffs.

Hartnett's analysis underscores the growing bubble risks as the summer approaches. The House's passage of a $3.4 trillion fiscal package, which includes tax cuts, has further fueled market optimism. However, Hartnett cautions that overbought markets can remain overbought due to the difficulty in conquering greed over fear. This sentiment is echoed in the market's response to the US economy's resilience and the administration's softer approach on tariffs, which has reignited interest in technology stocks and artificial intelligence.

Despite the bullish sentiment, trade concerns persist. The administration's plan to send out letters to trading partners setting unilateral tariff rates has kept trade issues at the forefront of market discussions. This uncertainty, coupled with Hartnett's warning, suggests that investors should be prepared for potential market corrections. Hartnett's recommendation to start offloading shares once the benchmark rises above 6,300 points highlights the need for caution in the current market environment.

Investors have allocated significant funds into cash and bonds in recent days, even as stocks rallied to record highs. 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.

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.