Paul Ciana, head of technical research at Bank of America (BAC), recently issued a warning to investors, advising them to hedge against further upside in the S&P 500 and prepare for a potential “three-wave correction” in the coming months. In a research report released on Thursday, Ciana noted that although the S&P 500 has rebounded nearly 17% from its March low, the rally has begun to show signs of fatigue after reaching a recent high on June 2.
Ciana projects that the S&P 500 could fall to as low as 6,850 points in the worst case, implying roughly 7.6% downside from current levels. He explicitly stated that the market roadmap for this summer will be a “three-wave correction,” with volatility intensifying following the ceasefire agreement-driven rebound and pullback risks accumulating. Ciana emphasized that the index’s advance has become “overextended” and momentum is gradually waning, so he recommends investors adopt a more defensive investment strategy from July through September. He further pointed out that the S&P 500 is facing increasingly evident selling pressure, and even if it later rises to 7,741 points and sets a new high, that could merely be a “false breakout.” Key support levels are sequentially located at 7,200, 7,025, and 6,850 points. Ciana also warned that as summer trading progresses, the market still faces a “double correction” risk that could persist until October, with the pullback potentially lasting longer than expected.
Beyond pullback risks, the AI investment boom and rising energy prices are jointly injecting strong momentum into the new U.S. stock earnings season. The strategist team at Goldman Sachs Group projects in its latest research report that second-quarter earnings for S&P 500 constituents will surge 22% year-over-year, and believes that companies as a whole have the capacity to meet or exceed this target. The team, led by Ben Snider, noted in the report that the core driver of this year’s U.S. stock rally has been better-than-expected corporate earnings, and the upcoming earnings season will serve as a key catalyst for market direction. Independent calculations from Bloomberg Intelligence are highly consistent with this assessment, estimating second-quarter profit growth at roughly 23%, close to the standout performance of the previous quarter.
The Goldman Sachs (GS) report explicitly identifies the AI investment boom as the primary theme of this earnings season. The strategists wrote that second-quarter results will once again confirm robust earnings growth, supported by solid macroeconomic fundamentals and sustained AI investment momentum. The report particularly emphasizes that the market’s current focus is not on the performance of the tech giants themselves, but on whether a broader range of companies along the supply chain can realize earnings delivery through AI demand. Goldman Sachs estimates that AI infrastructure-related stocks will contribute nearly 60% of the S&P 500’s second-quarter earnings-per-share growth, with Micron Technology (MU) and Nvidia (NVDA) together potentially accounting for more than 40% of that contribution.
At the same time, high oil prices provide another major growth pillar for the earnings season. Goldman Sachs’ optimistic outlook builds on an already strong first-quarter earnings base. S&P 500 constituents posted nearly 30% year-over-year profit growth in the first quarter, more than double the roughly 12% growth that analysts had forecast. Goldman Sachs noted that the last time such rapid year-over-year earnings growth occurred outside a recovery from a major economic shock was two decades ago, in 2004. This historical comparison both underscores the exceptional strength of the current earnings cycle and sets a higher benchmark against which to judge whether second-quarter momentum can continue.
