S&P 500 to Remain Range-Bound in Coming Months: Wells Fargo By Investing.com
Wells Fargo strategists believe the S&P 500 Index (SPX) is likely to remain range-bound in the coming months, according to a note released Wednesday.
The SPX is trading near its all-time high of 5,667 hit in mid-July, while the yield on the 10-year Treasury note has fallen below 3.7%, below the bank’s year-end target range.
Despite the rally in stock and bond prices, strategists have expressed concern that these valuations could extend beyond what fundamentals support.
Given the upcoming presidential election and what is typically a weaker season for stocks, Wells Fargo strategists believe investors should prepare for potential market weakness.
The firm adjusted its investment strategy, shifting funds from short- and long-term fixed income allocations to intermediate maturities and equities. Additionally, Wells Fargo raised its rating for small-cap stocks to Neutral from Underweight, although it continues to favor large-cap stocks over the Russell 2000 Index.
Strategists see economic weakness in the coming quarters, but anticipate eventual improvement. They expect the Federal Reserve to implement a series of rate cuts, for a total reduction of 175 basis points by the end of 2025.
“We expect these Fed rate cuts to have a positive effect on the economy and markets in 2025,” the strategists said. “We believe the global economy is likely to benefit as well, as the world’s major central banks have either already cut rates or are about to do so.”
Against the backdrop of current uncertainties, including seasonal market trends and a hotly contested presidential election, strategists suggest the S&P 500 Index could see range-bound trading in the months ahead.
They advise investors to reduce their positions in less favored sectors, such as real estate, utilities, consumer discretionary and consumer staples, when the index is trading at the upper end of its range.
On the other hand, if the market declines toward its recent lows, strategists recommend investing available funds in sectors such as energy, communication services, financials, industrials and materials, which they believe offer stronger balance sheets, more reliable cash flows and more reasonable valuations.
“Uncertainty often translates into opportunity. We believe 2025 could offer investors an improving economy that benefits from Fed rate cuts,” the strategists continued.
“The goal is to take advantage of opportunities now and in the coming months to make portfolio adjustments in equity and fixed income that we believe have the potential to enhance performance next year.”
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The SPX is trading near its all-time high of 5,667 hit in mid-July, while the yield on the 10-year Treasury note has fallen below 3.7%, below the bank’s year-end target range.
Despite the rally in stock and bond prices, strategists have expressed concern that these valuations could extend beyond what fundamentals support.
Given the upcoming presidential election and what is typically a weaker season for stocks, Wells Fargo strategists believe investors should prepare for potential market weakness.
The firm adjusted its investment strategy, shifting funds from short- and long-term fixed income allocations to intermediate maturities and equities. Additionally, Wells Fargo raised its rating for small-cap stocks to Neutral from Underweight, although it continues to favor large-cap stocks over the Russell 2000 Index.
Strategists see economic weakness in the coming quarters, but anticipate eventual improvement. They expect the Federal Reserve to implement a series of rate cuts, for a total reduction of 175 basis points by the end of 2025.
“We expect these Fed rate cuts to have a positive effect on the economy and markets in 2025,” the strategists said. “We believe the global economy is likely to benefit as well, as the world’s major central banks have either already cut rates or are about to do so.”
Against the backdrop of current uncertainties, including seasonal market trends and a hotly contested presidential election, strategists suggest the S&P 500 Index could see range-bound trading in the months ahead.
They advise investors to reduce their positions in less favored sectors, such as real estate, utilities, consumer discretionary and consumer staples, when the index is trading at the upper end of its range.
On the other hand, if the market declines toward its recent lows, strategists recommend investing available funds in sectors such as energy, communication services, financials, industrials and materials, which they believe offer stronger balance sheets, more reliable cash flows and more reasonable valuations.
“Uncertainty often translates into opportunity. We believe 2025 could offer investors an improving economy that benefits from Fed rate cuts,” the strategists continued.
“The goal is to take advantage of opportunities now and in the coming months to make portfolio adjustments in equity and fixed income that we believe have the potential to enhance performance next year.”
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