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Bank of America’s January barometer signals a promising outlook for the S&P 500 in 2025. The index rose 0.62% during its first five trading days, a historically bullish indicator. Data since 1928 reveals that when the SPX gains in early January, the year finishes higher 70% of the time, with an average annual return of 9.2%. The remainder of the year sees an average gain of 7.4%, with the index closing higher 64% of the time.
In the first year of the Presidential Cycle, like 2025, the trend strengthens. When January begins positively, the index historically ends the year up 79% of the time, averaging a 12.5% annual return. The rest of the year delivers a 6.2% return, with the index rising 64% of the time.
Despite the bullish start, potential risks linger. Bank of America highlights a technical “head and shoulders” pattern between 6017-6050, which could cap gains. If the SPX dips below Monday’s low of 5773, it may find support in the 5700-5650 range. Resistance lies between 5886-5965, as noted by strategist Stephen Suttmeier.
Sentiment indicators also lean bearish. The AAII Bullish Sentiment versus Bearish Sentiment gap hit its lowest since late 2023, signaling caution. Put/call ratios and the 30-month VIX relative to the VIX haven’t reached levels typical of market bottoms, indicating more volatility ahead.
Additionally, a bearish divergence in the 14-week Relative Strength Index (RSI) raises concerns. Despite recent rallies, the RSI has weakened, failing to confirm momentum or reach overbought levels seen in late 2024.
While optimism surrounds the SPX’s January performance, technical and sentiment risks suggest a cautious approach to 2025.
