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The S&P 500 probably isn’t hitting fresh highs anytime soon, according to Wells Fargo.
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A handful of headwinds will keep a lid on further gains, strategists said.
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The bank pointed to concerns surrounding a potential recession, AI, and geopolitical uncertainty.
The stock market’s long winning streak may be done for now, Wells Fargo said.
The bank’s strategists warned that stocks were unlikely to move significantly higher in the coming months and in their view, the market is “now fairly valued.”
That’s because to a trifecta of headwinds will cap gains for the S&P 500. The benchmark index is likely to face resistance around 5,670, the record high it notched earlier this summer.
Stocks continued to rally in August as investors gained more confidence about a soft landing and positioned for ambitious rate cuts from the Federal Reserve.
However, markets have way more uncertainty still looming, the bank said, pointing to geopolitical tensions in the Middle-East, doubts over whether the economy can avoid a recession, and concerns that the AI rally may be running out of steam.
Stocks are also navigating an election year, which has historically meant more volatility. Investors are assessing an uncertain political landscape, with presidential candidates Kamala Harris and Donald Trump remaining neck-and-neck in the latest polls.
“While we believe the S&P 500 Index remains in an uptrend, it now finds itself facing key resistance at the all-time high,” strategists said in a note on Monday. “For these reasons, we find it unlikely that the S&P 500 Index will reach meaningful new highs in the coming months.”
While stocks might not see a rally to fresh records soon, there could be an opportunity for investors to adjust and reallocate their portfolios to “especially unfavorable areas” — unloved areas of the stock market could have huge upside in the coming years.
That includes emerging markets, as well as US consumer discretionary, consumer staples, utilities, and real estate sectors.
Investors have tempered some of their enthusiasm for stocks since the start of the year, when lofty expectations for AI and easing monetary policy from the Fed boosted the market to a string of record highs. Since then, growth fears have overshadowed excitement about rate cuts, and questions about the sustainability of the AI rally have dented tech bullishness.
In the latest AAII Investor Sentiment survey, around 45% of investors said they feel bullish about the stock market over the next six months, down from 51% of investors who felt that way about a month ago.
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