The stock market rally is being driven by FOMO with more upside likely, but there's a looming risk ahead, Bank of America says

• A FOMO rally has taken over the stock market, and there could be more upside ahead, according to Bank of America.
• BofA expects the S&P 500 to rally into the 4,500 range after it broke above resistance.
• But the lack of confirmation from four other market indexes represents a tactical risk for stocks.

A FOMO rally, or fear of missing out, has taken over the stock market after the S&P 500 broke various resistance levels and hit new 52-week highs, and there could be more upside ahead, according to Bank of America.

BofA's technical strategist Stephen Suttmeier said in a Wednesday note that the 14% year-to-date rally in the S&P 500 has coincided with "solid technicals" that could push the index into the 4,500 range, or about 5% higher from current levels.

"The S&P 500 cleared 4,200 in early June to break out from a 4-month bullish cup and handle. This favors new 52-week highs above the August 2022 peak at 4,325, which the S&P 500 achieved last week, and projects further upside into the 4,500s," Suttmeier said.

Suttmeier highlighted a technical price objective of 4,580 for the S&P 500, and added that the recent breakout of the S&P 500's Advance-Decline line, combined with FOMO among asset managers, confirms that the ongoing rally in stocks is real.

"We view the breakout above 4,200 on the S&P 500 as a FOMO rally. The net long position for asset managers in S&P 500 e-mini futures shows a sharp increase in recent weeks to suggest that FOMO is catching on with institutional asset managers," Suttmeier said.

That FOMO could ultimately push the S&P 500 to "complacency" levels that were last seen in mid-2021, according to Suttmeier, suggesting that there's plenty of upside left if the index breaks above the 4,500 range.

But there is a looming tactical risk that could weaken the current rally in stocks, and that's if four major indices fail to confirm the recent rally and get rejected at their resistance levels, according to the note.

The resistance levels include 15,196-15,265 for the Nasdaq 100, 1,906-1,920 for the Russell 2000, 34,280-34,712 for the Dow Jones Industrials Average, and 16,000-16,222 the NYSE Composite.

Decisive breakouts above those levels would add credibility to the current stock market rally and help Suttmeier's case for more upside ahead.

"The S&P 500 cleared its resistances, but these indices have not, which is a tactical risk," he said.