These are the most overbought S&P 500 stocks as 2026 approaches

Key S&P 500 Stocks Show Overbought Signals, Offering Caution and Insight for 2026 Investors

Imagine you’re at a playground and see kids crowding onto one swing while ignoring others. That’s what’s happening with some stocks right now—everyone’s piling in, and it might be time to step back and check if it’s still safe to play.

Why This Matters for Investors

When investors rush into certain stocks, prices can get too high, too fast. This can mean a pullback is coming, which could impact your portfolio if you’re not careful. On the flip side, some stocks get ignored or sold off, which could be a chance to buy low before they bounce back.

The Bull Case: What’s Going Right

  • Merck: The drug company’s stock jumped 5% this week. Experts like BMO Capital see more room for growth thanks to steady vaccine sales and new drug successes. The stock’s recent upgrades suggest investors are hopeful about future profits, even if some old products aren’t selling as much.
  • S&P Global: This financial data giant rose 3% and is a favorite pick for 2026. Morgan Stanley says the company’s long-term goals look solid and risk is lower after their last big investor meeting.
  • Overall, the S&P 500 gained 1.4% this week, showing investors are feeling good heading into the new year.

The Bear Case: What Could Go Wrong

  • Overbought Risks: Stocks like Merck (RSI 73) and S&P Global (RSI 72) are in “overbought” territory, meaning they’ve gone up a lot and fast. This can be a warning sign that a dip is coming.
  • Lennar: The homebuilder’s stock dropped 3% and now has an RSI of 28, which means it’s “oversold.” Big banks downgraded Lennar after its recent earnings disappointed, and they predict more trouble ahead if the housing market stays tough.
  • Other names like Lamb Weston, DataDog, and Marathon Petroleum also landed on the oversold list, suggesting investors have lost confidence for now.
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What the Numbers Say

The Relative Strength Index (RSI) is a tool traders use to see if a stock is overbought (above 70) or oversold (below 30). Historically, when the S&P 500’s average RSI goes over 70, the next month’s return is often lower than normal, according to research by FactSet. This means buying at these high points can be risky.

Investor Takeaway

  • Don’t chase what’s hot: If a stock’s RSI is above 70, consider waiting for a pullback before buying in.
  • Look for bargains: Stocks with an RSI below 30 could bounce back, but do your homework—sometimes they’re down for a reason.
  • Diversify: Don’t put all your eggs in one basket, especially when markets are moving fast.
  • Watch earnings and news: Upgrades or downgrades from analysts can move stocks quickly, but they’re not always right in the long run.
  • Remember the playground: Just because everyone’s on one swing doesn’t mean it’s the best place to be. Balance your excitement with caution.

For the full original report, see CNBC

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