The post election stock market rally in the United States is continuing until the end of the year, with Wall Street leaders calling for higher target prices for next year. However, many analysts remind investors not to give up all caution when chasing the rally.
Some forecasters believe that the strong rebound since the November 5th election is a cause for concern, and the record high rise in the stock market suggests that a correction may occur as early as early next year.
One of the bears is the market research company BCA Research. The company expects the US stock market to fall into a bear market in the first half of next year, with stock prices potentially dropping as much as 35%.
The company stated in a recent report that the lingering risks in the economy pose a significant threat to the US stock market. Consumer spending seems to be slowing, with more and more shoppers looking for bargains in places like Target and Wal Mart. They said that other economic sectors such as the job market are also weakening.
Although we believe that a recession is more likely to occur in 2025, even without a recession, risky assets may disappoint, and current prices indicate poor future returns. We expect a bear market in the stock market to unfold at some point in the first half of the year, "the company wrote.
The company expects the S&P 500 index to fall to 4100 points by the end of next year. This is much lower than the 6500 and 6666 points predicted by Goldman Sachs and Bank of America strategists, respectively.
In fact, not only BCA Research, but also many people on Wall Street hold a pessimistic view because the valuation of US stocks is at a historical high. An analysis by Ned Davis Research shows that since 1928, in years when the S&P 500 index reached at least 50 historical highs, the benchmark index's median return for the following year was -6%.
Data shows that the S&P 500 index reached its 57th historical high of 2024 last week.
A clear challenge facing momentum research is that the stock market will not always rise, "the company's strategist wrote, adding that a decrease in market concentration will lead to a weakening of the stock market in 2025.
Perhaps artificial intelligence will drive another round of productivity and profit growth, thereby keeping inflation and Federal Reserve policies benign. History shows that this is the exception, not the norm, "the company emphasized.
Morgan Stanley senior portfolio strategist Andrew Slimmon suggests that investors should consider reducing their holdings of some chips by the end of this year.
He said in the latest interview, "The stock market is being led by foam and low-quality growth stocks. The current investment environment looks similar to that of 2021. The outcome of these stocks is not good. I just think now, December, is the time to put the stakes on the ground and say that everything is tied up. Investors need to be alert to what may happen next."
This year, many stocks have risen by more than 50%, 60%, or 70%. Therefore, I believe a cautious approach is to exit these areas and look for areas that are underperforming, "he added.