Stocks won’t hit new highs anytime soon, and 3 things mean the market is priced right, Wells Fargo says

• According to Wells Fargo, the S&P 500 probably won’t hit new highs anytime soon.

• A handful of headwinds will keep a lid on further gains, strategists said.

• The bank highlighted concerns about a potential recession, AI and geopolitical uncertainty.

The stock market’s long winning streak may be over for now, Wells Fargo said.

The bank’s strategists warned that the stock was unlikely to move significantly higher in the coming months and in their view the market was “now quite valued”.

That’s because a trifecta of headwinds will limit gains for the S&P 500. The benchmark is likely to face resistance around 5,670, the all-time high it hit earlier this summer.

Stocks continued to rise in August as investors gained more confidence in a soft landing and positioned themselves for ambitious interest rate cuts from the Federal Reserve.

However, markets have much more uncertainty looming, the bank said, pointing to geopolitical tensions in the Middle East, doubts about whether the economy can avoid a recession and concerns that the AI ​​rally could fizzle out.

The stock is also navigating an election year, which has historically meant more volatility. Investors are assessing an uncertain political landscape, with presidential candidates Kamala Harris and Donald Trump remaining in the lead in the latest polls.

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

While stocks may not soar to new records anytime soon, there may be an opportunity for investors to adjust and reallocate their portfolios to “particularly unfavorable areas” — unloved areas of the stock market could have a huge advantage in the coming years.

This includes emerging markets as well as the US consumer discretionary, consumer staples, utilities and real estate sectors.

Investors have tempered some of their enthusiasm for stocks since the start of the year, when high expectations for AI and an easing of monetary policy by the Fed drove the market to a string of record highs. Since then, growth fears have overshadowed enthusiasm about rate cuts, and questions about the sustainability of the AI ​​rally have hurt tech optimism.

In the most recent AAII Investor Sentiment survey, about 45% of investors said they feel optimistic about the stock market over the next six months, down from 51% of investors who felt this way about a month ago.

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