It’s time for sizzling stock prices to take a breather.
The market may be at that point now as summer winds to a close, one top Wall Street strategist argued.
“We deserve to be where we are [in markets], but do we have enough coming to really get the market incrementally excited from here from an economic perspective?” RBC’s Lori Calvasina said on Yahoo Finance Live (video above) in the wake of her latest research. “I’m just not seeing it yet. Maybe I’ll get it later this year, but not right now.”
Calvasina pointed to several reasons behind her growing concern about the near-term market outlook.
First, rising earnings estimates for S&P 500 companies is a phenomenon that has largely played out this year.
Investors usually race to buy stocks when analysts are lifting profit and cash flow forecasts on companies. Remember, the present value of a stock price reflects expectations of future cash flow.
This “important catalyst” for markets is in the rearview mirror, Calvasina said.
Second, investors may be too optimistic about the outlook for the US economy in 2024 leading to a strong reacceleration in earnings growth.
As it stands, economic indicators ranging from the July jobs report to various manufacturing surveys haven’t supported that optimism.
And lastly, Calvasina said, the looming presidential election in 2024 is a “source of uncertainty” for the stock market.
Calvasina explained investors are beginning to grow worried about the potential for another contentious race for the White House — and may head for the exit in the near term.
To be sure, the broader market is showing signs of fatigue as investors wade through the dog days of summer and assess above-average valuations as well as Fitch’s US credit rating downgrade.
The hottest trades of 2023 — namely those in the AI space — have come under pressure in August, for starters.
C3.ai (AI) is down 8% in August, Salesforce (CRM) is off by 4%, Microsoft (MSFT) is down 2%, and Nvidia (NVDA) has lost 3%.
In a new research note on Monday, BTIG technical strategist Jonathan Krinsky called out that the S&P 500 has dipped below its 45-day moving average. The move suggests buyer’s fatigue.
The tech complex — as measured through the prism of the Invesco QQQ Trust — has failed to break through a key resistance level according to Krinsky’s work.
And market leader Apple (AAPL) has seen its stock fall below the 50-day moving average after a mixed earnings report a week ago.
Month to date, the Dow Jones Industrial Average (^DJI), Nasdaq Composite (^IXIC), and S&P 500 (^GSPC) are all slightly lower.
“We see a market more vulnerable to bad news as stocks have become extended on a short-term basis,” Truist co-chief investment officer Keith Lerner said. “Valuations have pushed to one of the richest levels of the past few decades and investor expectations have been reset sharply higher as we head into a more challenging seasonal period.”
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Source: https://finance.yahoo.com/news/3-reasons-why-the-stock-market-rally-may-be-stopped-in-its-tracks-135810619.html