The stock market is overbought and poised for a correction, according to strategist Gareth Soloway. Despite the broadening of the stock market rally, Soloway believes the optimism surrounding a soft landing for the economy is misplaced. He argues that the rally is driven mainly by mega-cap stocks like Apple, Google, Microsoft, and Amazon, while the rest of the S&P 500 is only up around 4%. Soloway suggests that investors are now chasing the stocks that haven’t experienced the same explosive growth, hoping they will catch up.
Soloway points to several indicators of a weaker economic environment, including disappointing factory orders, weak industrial production, slower-than-expected retail sales, and stricter lending standards from banks. He disagrees with the increasingly bullish outlook and predicts a market correction. Soloway believes the Nasdaq could pull back by around 10%, while the S&P 500 may experience a 5-6% decline. Although these declines are not significant given this year’s overall gains, they could worsen if a full-blown recession occurs.
This contrarian view contradicts the revised up year-end targets for the S&P 500, as many Wall Street strategists anticipate a soft landing for the economy despite the Federal Reserve’s aggressive rate hikes. Morgan Stanley economist Ellen Zentner is among those who strongly believe in a soft landing, stating that the data supports this view and it has become the consensus. Goldman Sachs has also reduced its forecast for the likelihood of a recession in the next year.
Soloway maintains his bearish outlook, emphasizing the potential for a market downturn next year. He believes that if things turn sour and the Fed doesn’t intervene, there’s a 70% chance of breaking the October lows from last year.
It is important to note that this perspective represents one expert’s opinion, and other market participants may have differing viewpoints. The stock market’s future direction remains uncertain, and investors should consider a range of perspectives when making their investment decisions.
