Investing.com -- The S&P 500 index traditionally has a “bullish November-December seasonality,” Bank of America strategists said in a note Monday.
Historical data suggests that the S&P 500 (SPX) tends to perform well in those two months, particularly in election years. The index has risen 62% of the time in November with an average return of 0.96%, and December's performance is even stronger, with the index climbing 74% of the time and an average return of 1.32%.
“The SPX is up 58% of the time in November on an average return of 1.14% and up 83% of the time in December on an average return of 1.51%,” strategists noted.
They also pointed out that the S&P 500's performance through October can influence its year-end rally. If the index is up year-to-date (YTD) through October, as anticipated for 2024, it has historically continued to rise 79% of the time in the November-December period, with average and median returns of 4.00% and 4.27%, respectively.
This pattern of strength is particularly pronounced in Presidential election years, BofA emphasized.
From a technical analysis perspective, strategists said the SPX has maintained its tactical support within the bullish trend, despite last week's drop.
More concretely, the index held its "risk management" support level between 5775-5745, dropping only to 5762. For the bullish trend to continue, the SPX needs to regain its October highs in the 5870s, with potential objectives at 5930 and a more ambitious target of 6180, based on a bullish cup and handle pattern.
“If the SPX struggles below the October highs, the risk would increase for a retest of the cup and handle breakout zone in the 5600s with the rising 50-day moving average (MA) near 5688,” strategists wrote.
In terms of market sentiment, BofA notes that individual investor survey signal a decline in bullishness.
The spread between the American Association of Individual Investors (AAII) Bulls and AAII Bears has decreased significantly from early October, moving from 28.4 to 7.8.
But while investors are less bullish, they are not yet bearish, as indicated by the still positive Bulls versus Bears spread.