Wall Street strategist warns of setbacks: US stock markets overbought and vulnerable

Wall Street strategist warns of setbacks: US stock markets overbought and vulnerable

According to a report by finanzmarktwelt.de,

The US stock markets have been in rally mode since the end of October. The brilliant year-end rally ultimately ensured that 2023 was a fantastic year for the stock market. The bottom line was that the US benchmark index recorded an increase of 24%. The technology index Nasdaq 100 even gained around 54%, while the Dow Jones Industrial Average ended the year with an increase of 13%. However, after the longest winning streak since 2004 - the S&P 500 rose for nine weeks in a row - the market is massively overbought. This means that the stock markets are likely to be vulnerable to a setback.

This is also the view of a top strategist on Wall Street, who assumes that US stocks will take a short break after the Christmas rally. From a seasonal perspective, the probability of a correction also increases. Statistically speaking, there is often a setback in January before things start to rise again. As Bloomberg reports, Oppenheimer Asset Management believes U.S. stock markets will take a breather from their rapid gains before a potential new catalyst emerges with the next earnings season.

Investors waiting for the S&P 500's 16% rise in recent weeks to continue won't have to wait too long. But there could be a period of consolidation before US companies start publishing their results at the end of next week.

In terms of market impact, the expected pullback may lead to a short-term consolidation period. This can cause prices to fall as investors and investors prepare for the upcoming earnings season. A correction in January would not be a surprise and statistically has already happened in the past.

However, Wall Street strategist John Stoltzfus remains bullish on 2024, predicting the S&P 500 will hit 5,200 before the end of the year. This in turn could create a positive mood in the market and push the stock markets higher again in the short term.

The next few weeks will therefore be crucial as the fourth quarter reporting season begins and market participants await companies' quarterly results. Stoltzfus' outlook shows that equity markets continue to have the potential to rise, supported by improving fundamentals and the Fed's expected interest rate turnaround.