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The stock market rally following the US election is continuing into the end of the year, with Wall Street giants calling out increasingly higher target prices for the next year. However, many analysts are cautioning investors not to abandon all caution in the pursuit of the upward trend.
Some forecasters believe that the strong rebound since the election on November 5th is a cause for concern, with record-breaking stock market increases suggesting that a correction could occur as early as the beginning of next year. Among the bears is market research firm BCA Research. The company predicts that the US stock market will fall into a bear market in the first half of next year, with stock prices potentially dropping by as much as 35%. In a recent report, the company stated that lingering risks in the economy pose a significant threat to the US stock market. Consumer spending appears to be slowing down, with more shoppers looking for bargains at places like Target and Walmart. They say that other areas of the economy, such as the job market, are also weakening.
“Although we believe a recession is more likely in 2025, even without a recession, risky assets could be disappointing, and current prices predict poor future returns. We expect a bear market in stocks to unfold at some point in the first half of the year,” the company wrote. The company forecasts that the S&P 500 index will drop to 4100 points by the end of next year. This is significantly lower than the 6500 points and 6666 points predicted by Goldman Sachs and Bank of America strategists, respectively.
In fact, it’s not just BCA Research that holds a pessimistic view; there are also many on Wall Street who are bearish, as US stock valuations are at historical highs. An analysis by Ned Davis Research shows that in years when the S&P 500 index has set at least 50 historical highs, the median return rate of the benchmark index for the following year is -6%. Data shows that the S&P 500 index set its 57th historical high for 2024 last week.
“A clear challenge for momentum research is that the stock market will not rise forever,” the company’s strategist wrote, adding that a decrease in market concentration will lead to a weaker stock market in 2025. “Perhaps artificial intelligence will drive another round of productivity and profit growth, thus keeping inflation and Federal Reserve policies benign. History shows that this is the exception, not the norm,” the company emphasized.
Morgan Stanley’s Senior Portfolio Strategist, Andrew Slimmon, suggests that investors should consider reducing some of their positions by the end of this year.
In his latest interview, he stated, “The stock market is currently being led by bubbles and low-quality growth stocks. The investment environment appears similar to that of 2021. The outcomes for these stocks have not been favorable. I simply feel that now, in December, is the time to place bets on the ground and declare that everything is over. Investors need to be vigilant about what may happen next.” “This year has seen many stocks rise by more than 50%, 60%, and 70%. Therefore, I believe it is prudent to exit these areas and seek out sectors that have underperformed.” He added. To screen for preferred individual stocks and uncover investment opportunities, click to experience immediately.