Black Friday Sale! Save huge on InvestingProGet up to 60% off

Evercore: Correction has begun; seasonality, political uncertainty to underpin market volatility

Published 22/07/2024, 14:46
© Reuters.
US500
-

According to Evercore ISI, the market has entered a correction phase driven by weak August and September seasonality and heightened political volatility, reminiscent of the Clinton vs. Dole and Bus vs. Gore election years.

"[The] correction has begun in Time and Price," analysts noted, predicting the S&P 500 will test its 100-day moving average (5,272) by the Democratic National Convention on August 19-22 before resuming an upward trajectory to a year-end target of 6,000.

Despite the turbulent market conditions, Evercore ISI sees no signs of a 2000-style tech bubble. They emphasized that, unlike the Y2K period, there has been "no surge in sentiment, no surge in M&A, no deterioration in market breadth, and no material labor market deterioration."

However, they do caution that a market correction is still possible. Historically, a -13% pullback is average in a non-recession year, with August and September being the weakest months. Evercore ISI suggests that this correction phase will eventually resolve into further market upside, comparing the current environment to the 1996 election year.

Amid the volatility, Evercore ISI advises positioning with core investments in AI Revolutionaries and maintaining an overweight stance on sectors like Communication Services, Consumer Staples, Health Care, and Information Technology.

They believe it is prudent to avoid economically sensitive sectors such as Consumer Discretionary, Industrials, and Materials. Additionally, they see opportunities in Small Cap Standouts and Small Cap/Valuation Factor Standouts, advising to "buy weakness."

Technology shares are particularly pressured as President Biden places fresh restrictions on tech exports to China, adding another layer of volatility to the market. Despite the challenges, the firm notes that small caps have outperformed recently, benefiting from cooling inflation and rising expectations of Federal Reserve rate cuts.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.