After experiencing a strong market trend of continuously hitting new highs in the first half of this year, the US stock market seems to have paused its upward trend slightly since July, falling into a period of significant volatility.
On Wednesday of this week, after experiencing the impact of CPI data, the US stock market started with a brief decline, then fluctuated upwards, and finally achieved a V-shaped rebound, realizing three consecutive trading days of gains. It rebounded significantly from last Friday's low, with only about 2% of the increase space left from the previous historical high.
However, Wells Fargo still believes that the US stock market may not be able to break through the record high of 5669.67 points set this summer in the short term, and the months long rally may come to a temporary end.
A strategist from Wells Fargo warns that the US stock market is unlikely to rise significantly in the coming months. In their view, the current valuation of the stock market is already the most reasonable level.
The trend of the S&P 500 index from the beginning of the year to the present
Three major factors may limit the rise of the US stock market
In the first half of this year, the US stock market has been on the road to record highs until mid July, when the S&P 500 index rose to a record high of 5669.67 points, and then began to fluctuate and fall back. As of the close of this Wednesday, the S&P 500 index was trading at around 5554 points.
Currently, with the significant cooling of inflation in the United States, it is a foregone conclusion that the Federal Reserve will cut interest rates in September, and investors are also looking forward to the future trend of the US stock market. But in the view of Wells Fargo, there are three major unfavorable factors that will limit the rise of the S&P 500 index, preventing it from breaking through its previous high.
These three major factors are the geopolitical tensions in the Middle East, market doubts about whether the US economy can avoid recession, and concerns about the potential loss of momentum in the rebound of artificial intelligence.
Since the beginning of this year, what has driven the US stock market to continuously reach new highs is the market's extremely high expectations for artificial intelligence and the Federal Reserve's interest rate cuts. But now, investors' enthusiasm has weakened: market concerns about US economic growth outweigh excitement about interest rate cuts, and doubts about the sustainability of artificial intelligence heat have weakened bullish sentiment towards technology stocks.
In the latest AAII investor sentiment survey, approximately 45% of investors expressed optimism about the stock market over the next six months, down from 51% a month ago.
The election will increase the volatility of the US stock market
In addition, as the November US presidential election approaches, the volatility of the US stock market may also increase.
From a historical perspective, election years often mean greater stock market volatility, and investors need to assess the political situation full of uncertainty - which is even stronger considering that this year's presidential candidates Kamala Harris and Donald Trump are still undecided in the latest polls.
&Amp; quot; Although we believe that the S&P 500 index is still on an upward trend, the index is currently facing key resistance at historical highs; quot; Based on these reasons, we believe that the S&P 500 index is unlikely to reach a meaningful new high in the coming months, "wrote a strategist at Wells Fargo in a report
However, Wells Fargo pointed out that although the US stock market may not rebound to a new high soon, investors may take this opportunity to adjust their investment portfolios and reallocate assets to "particularly unpopular areas" - areas in the stock market that are currently unpopular may have huge upside potential in the coming years.
The niche areas it refers to include emerging markets, as well as the non essential consumer goods, essential consumer goods, utilities, and real estate industries in the United States.