Many Wall Street analysts are warning investors to brace for a pullback, as inflated stock prices could face a steep drop amid weak economic data.
Morgan Stanley, Deutsche Bank AG, and Evercore ISI expect the S&P 500 (SPX) to fall in the coming weeks and months following its relentless rally since April, which pushed the index to record highs.
Morgan Stanley says there could be a 10% correction this quarter, citing tariff pressures on consumers and businesses. Evercore projects an even sharper drop of up to 15%, while Deutsche Bank argues that stocks are overdue for a downturn after a three-month surge.
These warnings emerge as economic concerns mount. Last week, data revealed that inflation is accelerating while employment and consumer spending are weakening. To make matters worse, stocks are now entering their historically worst seasonal period. Over the past 30 years, the S&P 500 has typically lost 0.7% in August and September, as opposed to gaining 1.1% in other months.
A close look at a volatility indicator, such as Bollinger Bands, reveals that prices have hiked considerably over the past three months. Given markets' tendency to revert to averages, the S&P 500 could correct toward the 5,800 level, where the 100-period Bollinger Band with two standard deviations currently sits.
While traders and investors listen to Wall Street forecasts and advice, these prophecies may turn self-fulfilling.
The overall recommendation is to sell the SPX.
Profits are taken at the level of $5,800. Stop Loss could be set at $7,000.
The volume of your open position should be calculated so that the potential loss, protected by a Stop Loss order, does not exceed 1% of your deposit. If your account balance does not allow you to open a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
