(Bloomberg) — The S&P 500 Index has likely posted the most gains it will see this year as investors grow increasingly nervous about the stock market’s rich valuations, the latest Bloomberg Markets Live Pulse survey shows.
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The 2024 rally, which has pushed the U.S. stock benchmark to 31 record highs, has made the asset class more expensive than U.S. credit or gold, according to a majority of the 586 respondents. After rising about 50% since October 2022, driven by tech stocks, the bull market has outpaced the median of its predecessors dating back to 1957.
Investors aren’t about to hit the sell button yet, but there are signs of skittishness as about half of survey participants say stocks will see the start of a correction of at least 10% this year, while 35% say that this will happen during the year. 2025. That overarching sense of caution is also reflected in the options market, where traders have built hedges against potential losses on technology stocks.
With the economy and profits still growing and plenty of liquidity sloshing around in the financial system, most poll participants see room for additional gains this year, but only a modest amount. The survey’s average projection is that the S&P 500 will end 2024 at 5,606 points, almost 3% above Friday’s close. That’s a happier picture than the average target of Wall Street strategists, which is for the index to change little from current levels by year’s end.
About three-quarters of participants say they will maintain or increase their exposure to the S&P 500 in the next month. It makes sense to ride the bullish wave for now, Ed Clissold and Thanh Nguyen of Ned Davis Research wrote in a June 20 note. However, they have doubts as the year progresses given all the questions investors face in the second half around key areas such as Federal Reserve policy and the US election. “Maintain an overweight position in equities for now,” they wrote. . “But be prepared for a more defensive positioning, possibly in the third quarter.”
As a measure of the high valuation of stocks, Michael O’Rourke of JonesTrading points to the market capitalization of the S&P 500 relative to the size of the economy. Since about 1990, that ratio has only been higher as stocks soared in 2021.
“We are in a bubble and there is a big risk that the economy will finally slow down in the second half of the year and growth rates should contract,” said O’Rourke, the firm’s chief market strategist. “These are very dangerous levels for long-term investors to buy stocks.”
Artificial intelligence, a key driver of the market’s nearly 15% growth this year, is seen as the most likely trigger for a sell-off, with 31% of respondents wary of a negative surprise on that front.
Technology stocks in the so-called Magnificent Seven basket – led by AI darling Nvidia Corp. – have dominated earnings growth, although their influence is likely to decline in the coming months, according to Bloomberg Intelligence analysis.
Concerns about the economy are also a top priority. About 27% of pollsters said stock prices could fall if unemployment rises, while nearly a quarter pointed to the risk of a surprise rise in inflation that would put the Fed on hold for longer.
The unemployment rate rose to 4% in May, the highest since early 2022. Economists at Goldman Sachs Group Inc. warned that the labor market is at a potential ‘tipping point’, where any further weakness in demand for workers will impact employment, and not just employment. openings.
“Overall economic conditions are confusing,” Kim Forrest, chief investment officer at Bokeh Capital Partners, said by email. “Inflation appears to be declining, but employment appears to be slowing.”
For all the reasons to worry in the coming months, the survey also contains some potentially rosier signals.
First, participants forecast that oil prices will likely end around $80 for WTI futures in 2024, right around Friday’s levels.
The lopsided rally in the stock markets has also caused major disruptions in the market. For example, value stocks are historically cheap compared to their growth peers and the broader market, and to 40% of survey participants they now look like the biggest bargain in U.S. stocks. This is followed by small caps and the equally weighted S&P 500.
“We could see the market rise by the end of the year if we avoid a recession – which I think is very likely,” said Bokeh Capital’s Forrest. “And it all depends on the outlook for 2025, as we approach the end of the year.”
The MLIV Pulse survey was conducted from June 17 to June 21 among Bloomberg News terminal and online readers around the world who chose to participate in the survey, and included portfolio managers, economists and retail investors. Terminal readers can subscribe to future surveys here.
This story was produced with the help of Bloomberg Automation
–With help from Vildana Hajric.
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