Bank of America NYSE:BAC technical strategist Paul Ciana is cautioning that U.S. equities could face a corrective phase in the third quarter. The bank's analysis suggests the powerful first-half rally may be losing momentum as stretched valuations and weakening indicators point to potential consolidation.
The S&P 500 has already reached Bank of America's 2026 target of 7,431 and approached its more optimistic 7,741 level after hitting a record 7,621 in early June. The firm has advised clients since late May to add portfolio hedges during market rallies and reassess conditions later in the year.
Technical indicators show the recent rally may be losing steam, with Bank of America seeing the possibility of a correction that could push the S&P 500 toward support levels around 7,122 or below 7,000. The bank warned that any brief move to new highs near its 7,741 target could prove to be a "bull trap."
Margin debt, which measures borrowed money used to buy stocks, rose 54% from a year earlier through May, approaching levels historically associated with major market peaks. Bank of America said continued growth above 60% would increase correction risks.
For energy investors, Bank of America expects Brent crude oil to stabilize in a range of roughly $65 to $85 per barrel during the second half of 2026. Despite near-term caution, the bank noted post-midterm-election periods have historically supported equities and said a year-end rally remains possible if the anticipated summer correction runs its course.