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Selling season, election ahead, but keep an eye on ’25, says Wells Fargo

Published 17/09/2024, 15:48
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Investing.com -- Wells Fargo (NYSE:WFC) strategists believe that investors should prepare for more market volatility as the selling season approaches, amplified by the upcoming election cycle.

Historically, the late summer to early fall period has been marked by significant declines in the stock market. Over the past seven years, the S&P 500 has consistently faced sell-offs ranging from 5% to 20%, and the investment bank predicts that this trend is likely to continue in 2024.

Contributing to the uncertainty is the tightly contested U.S. election, which is expected to heighten market volatility.

“A tightly contested and open election where the incumbent is not seeking reelection, as we have currently, only serves to increase the uncertainty,” strategists said in the note.

“Our view is that in the coming months, bouts of volatility are likely while stocks chop sideways and struggle to make meaningful new highs.”

However, Wells Fargo suggests that this period of volatility could present opportunities. The firm recommends that investors be ready with a "shopping list" if the market reaches recent lows, pointing to sectors like U.S. Large Cap Equities, and specific segments such as Communication Services, Energy, Financials, Industrials, and Materials within the S&P 500.

“We think U.S. Small Cap Equities could also be an attractive option for adding exposure near market lows if the portfolio is underallocated to the asset class,” strategists added.

On the other hand, trimming positions in overexposed areas such as Consumer Discretionary, Consumer Staples, Real Estate, and Utilities may be wise if the market hits recent highs.

Looking beyond 2024, Wells Fargo is optimistic about the longer-term outlook.

Post-election, the firm expects the economy to shift from its current slowdown to sustained growth in 2025, driven by an earnings recovery and a resurgence in equity prices. The report advises investors to keep an eye on 2025 as they make decisions in the coming months.

“Put simply as a campaign slogan, “Keep an eye on ’25,” the bank concluded.

The S&P 500 managed a modest rise in a quiet trading session on Monday, while the Nasdaq 100 declined, pressured by a drop in tech stocks. Investors weighed the chances of a larger-than-expected rate cut from the U.S. Federal Reserve later this week.

The S&P technology index, which has been the strongest among the 11 major S&P sectors this year, saw a 0.95% decline, making it the biggest loser of the session.

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