Stocks Won’t Hit New Highs Anytime Soon, and 3 Things Mean the Market Is Fairly Valued, Wells Fargo Says

• The S&P 500 is unlikely to reach new highs anytime soon, according to Wells Fargo.

• Strategists say several headwinds will hamper further gains.

• The bank pointed to concerns surrounding a potential recession, AI and geopolitical uncertainty.

Wells Fargo expects the stock market’s long winning streak to be over for now.

The bank’s strategists warned that stock prices are unlikely to rise significantly in the coming months and that the market is “fairly valued now”, they said.

That’s because a trilogy of headwinds will limit gains for the S&P 500. The benchmark index is likely to face resistance around 5,670, the record high reached earlier this summer.

Stocks continued to rise in August as investors grew more confident of a soft landing and prepared for ambitious rate cuts from the Federal Reserve.

However, there is still much more uncertainty in the markets, the bank said, citing geopolitical tensions in the Middle East, doubts about whether the economy can avoid a recession and concerns that the AI ​​rally is losing steam.

Stocks are also navigating an election year, which historically means more volatility. Investors are assessing an uncertain political landscape, with presidential candidates Kamala Harris and Donald Trump remaining neck-and-neck in recent polls.

“While we believe the S&P 500 Index remains in an uptrend, it now faces significant resistance at its all-time high,” strategists said in a note Monday. “For these reasons, we believe it is unlikely that the S&P 500 Index will make meaningful new highs in the coming months.”

While stock prices may not be breaking new records anytime soon, there could be an opportunity for investors to adjust and reallocate their portfolios to “particularly unfavorable areas” — less-favored areas of the stock market could have huge upside potential in the coming years.

This applies to emerging markets, but also to the US consumer durables, consumer staples, utilities and real estate sectors.

Investors have tempered their enthusiasm for stocks since the start of the year, when high expectations for AI and the Fed’s dovish monetary policy drove the market to a series of record highs. Since then, growth fears have overshadowed excitement about rate cuts, and questions about the sustainability of the AI ​​rally have dented tech optimism.

The latest AAII Investor Sentiment survey shows that about 45% of investors are optimistic about the stock market over the next six months, up from 51% a month ago.

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