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One strategist predicted that the S&P 500 will likely fall at least 5% in the coming months.
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CFRA’s Sam Stovall said a pullback tends to follow a great first quarter for the benchmark index.
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On the plus side, Stovall said the S&P’s full-year gains are typically over 20% after a great start.
Brace for a breather and a pullback of at least 5% after a breathless start to the year, a strategist has warned.
The S&P 500 rose by more than 10% in the first quarter. The AI mania stoked the fire among stocks like Nvidia and Microsoft, and cooling inflation fueled investor hopes for a wave of rate cuts, fueling demand for stocks.
Sam Stovall, chief investment strategist at CFRA Research, recently told Yahoo Finance that the index’s performance was the 11th best first-quarter return since World War II. However, he noted that 14 of the top 15 returns were followed by declines of 5% or more, and a subsequent slump of more than 12% in some cases.
“I’m increasingly concerned that we’re going to have to endure another decline of 5% or more before the year is out,” said Stovall, who described the slump as a “resetting of the dials” or “digestion” after a big meal.
That would drop the S&P from 5,432 points on Friday to around 5,160 – the same level as in early March. A 12% drop would drop the index below 4,800, where it traded in January.
Stovall said the “silver lining” is that after a stellar first quarter, the S&P 500 tends to end the year down more than 20% on average. That suggests the index could significantly build on its 14% gain since the start of the year.
The Wall Street veteran, who was S&P Global’s chief investment strategist for 27 years before joining CFRA in 2016, also outlined what could trigger a pullback.
He pointed to an unpredictable event, such as a war or bank failure, markets rising too quickly and becoming overloaded, or an economic slowdown rekindling fears of a recession among investors.
Noting that the S&P is trading at a 30% premium to its average price-to-earnings ratio over the past two decades, Stovall emphasized his reliance on technology stocks for his recent gains.
“How long can this jumbo jet fly on just one engine?” he asked.
Read the original article on Business Insider
