Bank of America Says the Market Is Due for a Drop. Half of Bear-Market Warning Signs Are Flashing.

Bank of America is warning investors that Wall Street may be due for a drop after an unusually long stretch without a significant stock market decline, even as the firm maintains that the longer-term bull market remains intact.

Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, said the S&P 500 has experienced only one pullback of at least 5% in 2026, compared with an average of roughly three such declines in a typical year.

The market has gone even longer without a full-fledged correction, generally defined as a drop of at least 10% from a recent 52-week high. According to Subramanian, the last correction occurred in the spring of 2025, when markets were shaken by tariff concerns.

"Pullbacks are normal," Subramanian wrote, according to CNBC. "In our view [we] are overdue for a pullback." The warning comes as several pressures are converging on U.S. stocks, including historically difficult seasonal trends, elevated Treasury yields, renewed inflation concerns and growing anxiety around the artificial intelligence trade that has helped propel parts of the market higher.

September and October have historically been particularly challenging for stocks. Bank of America noted that the S&P 500 has averaged a 0.6% decline during the two-month period based on data going back to 1928, making it the weakest average two-month stretch of the year for the benchmark.

Signs of that seasonal weakness may already be emerging. The major U.S. averages are coming off a losing week and have declined so far in September. Stocks edged down on Monday as concerns about AI safety weighing on semiconductor companies and other stocks closely tied to the artificial intelligence boom.

Meanwhile, Treasury yields remain near multiyear highs. Recent inflation data have increased expectations that the Federal Reserve could raise interest rates this week, adding another potential headwind for equities.

Higher interest rates can put pressure on stock valuations by making bonds more attractive relative to equities and increasing borrowing costs for companies and consumers. Despite the growing list of risks, Subramanian is not predicting the end of the bull market. "The consumer is okay, as are jobs," she wrote, adding that the long-term bull market "is intact."

The bigger problem for investors may be that Bank of America sees relatively little upside over the next year. Subramanian has set a 12-month target of 7,800 for the S&P 500. Based on Friday's closing level, that would represent upside of less than 2%.

At the same time, Bank of America raised its year-end 2026 S&P 500 forecast to 7,400 from 7,100. Despite the upgrade, the new target would still imply a decline of about 3.4% from Friday's close. "50% of our bear market signposts are triggered, not as bad as 70% seen in May-June, but still elevated," Subramanian said.