Wall Street analysts warn the US stock market is facing a potentially bumpy autumn

Analysts at firms including Morgan Stanley, Citigroup Inc., Deutsche Bank AG and Bank of America Corp published notes this month warning about the current risks in the US equity market. As of Thursday this year, the S&P 500 has already set a record 54 — the most during that period since 1995 — with many analysts saying they believe the potential for a pullback or, at least, flatter returns is rising. Is.

Behind that cautious outlook, the researchers said, is a combination of things including upbeat investment sentiment, expanded valuations and anticipation that inflation and supply-chain disruptions will weigh on corporate margins. In a Wednesday note, strategists at BofA Securities said they saw little to get excited about, “Is there good news left?” “There’s already a price for a lot of optimism,” he said.

In the note, the Bank of America team led by Savita Subramaniam, Head of US Equity and Quantitative Strategy, moved its year-end price target for the S&P 500 price to 4250 – a 4.7% decrease from the level of 4458.58 at which the benchmark The index closed on Friday. For 2022, Bank of America has set a price target of 4600 for the end of the year.

Analysts’ cautious outlook for U.S. stocks presents a contrast to the so-called TINA—or “have no choice”—that has dominated investor outlook for the past year. Because returns on other assets like bonds have been so low, many investors have justified their continued bullish position in stocks. The Federal Reserve’s liberal monetary policy has provided a continued boost for equities this year as well, as has the lure of memes to big investment returns from a slew of companies. Stock to Covid-19 beneficiaries.

However, in their September notes, some strategists said they are looking at other segments of the market for future gains. In a note last week, strategists at Morgan Stanley wrote that they were downgrading their ratings on US equities to “underweight”, adding that they preferred stocks in Europe and Japan to hold on to cash. increasingly attractive.

The Morgan Stanley team, including Andrew Sheets, wrote in the note, “We expect an understandable level of cash to move overweight.” The note noted that the selection of international equities and other assets is attractive relative to cash. The note continued, “Morgan Stanley strategists forecast cash to outperform US equities, government bonds and credit over the next 12 months.

The US stock market is already showing signs of weakness in recent trading sessions. All three major indices declined last week and are currently down for the month. If this trend continues, it will be the first monthly loss for the S&P 500 since January. In general, September is a historically weak period for the US stock market. Investors are entering a period of uncertainty, especially this year.

Over the coming week, investors will analyze the latest inflation data that will come from the Labor Department’s consumer-price index, which ends Tuesday. They will be looking for any fresh comment from central bankers on their views on when the Fed will roll back its asset-buying stimulus program. Some investors and analysts see the tightening of monetary policy as a potential risk to stocks.

In a note last week, analysts at Citi Research said they see another risk for the market: concerns that the current bullish situation could trigger a sell-off in the market. Such long positions on the S&P 500 are reduced by 10 to 1, wrote a team of analysts including Chris Montagu, adding that if the benchmark index drops below 4435, about half of long positions will be at a loss, Which is less than 1% away compared to Friday. completion level.

“This means that a short correction could be exacerbated by forced long liquidations to push the market further down,” Citi notes.

This month’s alarm bells are not the first time analysts have been sounded during the current bull run. Throughout 2021, broad market observers on Wall Street have raised concerns about signs of overbought in the market, and investors have prepared for periodic pullbacks.

Still, US stocks have largely continued to decline, even in the midst of periodic declines. On Friday, the S&P 500 fell for the fifth consecutive session, its longest losing streak since February, after losing 1.7% for the week.

The last time the benchmark index had a weekly loss around that size was the week ended June 18, when it fell 1.9% for the week. The index then climbed 4.9% over the next three weeks.

This story has been published without modification to the text from a wire agency feed