U.S. Stocks Gain Against Year-End Rally, But Overbought Concerns Rise
The year is ending with a bang for U.S. stocks as they surge in the final weeks of 2023. But Oppenheimer Asset Management is cautioning that the sudden rebound may have pushed stocks into an overbought state, leading to a potential pullback as we head into 2024.
Market strategists at Oppenheimer Asset Management have expressed their concerns regarding the recent rapid gains in the stock market. Led by John Stoltzfus, the chief investment strategist and managing director at Oppenheimer, the team warned of potential overbought levels, citing the five weeks of consecutive gains that stock indexes have achieved.
The data from FactSet showed an extensive rise in November, with the Dow Jones Index, S&P 500 Index, Nasdaq Composite Index, and Russell 2000 Index experiencing significant increases of 9.7%, 9.6%, 11.3%, and 12.1%, respectively.
The recent comprehensive rebound in the U.S. stock market suggests that the rally’s scope is expanding to include small and mid-cap stocks. This rapid surge has been attributed to the expectations of a “soft landing” for the U.S. economy following aggressive interest rate hikes by the Federal Reserve.
However, there are concerns about market sentiment. A survey conducted by the American Association of Individual Investors indicated a marked increase in bullish sentiment, reaching the highest level since August, while bearish sentiment dropped to its lowest level since January 2018.
Oppenheimer strategists are not bearish, but they anticipate that strong year-end gains might be met with skepticism in the early months of the new year. Despite their caution, they previously predicted that the S&P 500 would surpass 4,900 by the end of the year.
Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management, explained that bullish sentiment doesn’t necessarily reflect optimism about the market but rather minimal downside risks in the near term. Moreover, the decreased CBOE Volatility Index has made investors less inclined to take precautions against potential market downturns.
Draho warned that after a month of sharp gains, a period of consolidation may be necessary for the stock market to catch its breath, as a lot of good news has already been priced in, leaving it vulnerable to disappointment.
It appears that while the stock market is ending the year on a positive note, market strategists and analysts are urging caution, underscoring the need for vigilance and carefully monitoring the market trends as we move into 2024.