Bank Of America Advises Hedging Portfolios Ahead Of Potential Q3 S&P 500 Pullback, Warns Of 'Three-Wave Correction'

Bank of America Corp. (NYSE: BAC ) is warning investors to hedge their portfolios as the bank sees a potential correction in the S&P 500 index in the third quarter of the current fiscal year.

Signs Of Market Exhaustion According to a Bloomberg report, Bank of America’s global head of technical strategy, Paul Ciana, is hinting at a decline in the S&P 500 index after the index peaked at 7,620.90 points on June 2, 2026.

Currently, the index sits at 7,440.43 points, as of Monday’s close, which is still 17.29% higher than its lowest point of the year on March 30, 2026, at 6,343.72 points.

The strategist notes that stretched valuations and weakening indicators can lead to a “three-wave correction” in the index.

Alerting investors to maintain a "defensive stance" from July through September, Ciana said that the index’s rally after the U.S.-Iran ceasefire has been “volatile as correction risks build." Read Also: Tom Lee Identifies 4 Catalysts That Could End The Historic AI Semiconductor Rally Key Support Levels to Watch Expecting a nearly 7.6% decline from the current levels, Ciana forecasts the index to drop around 7,122 points, with a further downside risk to 6,850 levels.

This comes as the margin debt has soared 54% year-over-year, which has been previously seen during major market peaks.

Other BofA equity strategists like Savita Subramanian also told Bloomberg that the market is showing "too many red flags" and that investors should "take profits" whenever they can.

Divided Wall Street Outlook Not all experts expect a decline in the index.

Fundstrat’s Tom Lee had earlier said that he sees the S&P 500 “above 7700” by the year-end.

Similarly, JPMorgan’s baseline projection for the S&P 500 sits at 7,800.

However, BofA also maintains that while a summer drop is likely, a year-end rally remains possible once the correction runs its course.

How Have Markets Performed In 2026? The S&P 500 index has advanced 8.49% year-to-date.

Similarly, the Nasdaq Composite index was up 11.12%, and the Dow Jones gained 7.85%YTD.

The SPDR S&P 500 ETF Trust (NYSE: SPY ) and Invesco QQQ Trust ETF (NASDAQ: QQQ ), which track the S&P 500 and Nasdaq 100, respectively, closed higher on Monday.

The SPY ended up 1.65% at $741.00, while the QQQ advanced by 2.49% to $724.08.

Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA ), closed 0.76% higher on Monday.

In premarket on Tuesday, SPY was up 0.14%, and QQQ also advanced by 0.17%, whereas DIA was down by 0.0096%.

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