By Alessandro Albano
Investing.com – Should You Sell Your Stocks Before Summer? According to several investment banks, yes, due to the deteriorating economic outlook and the recent increase in equity valuations.
Big Tech’s soaring valuations could prove “a dangerous development for the entire stock market,” analysts at Bank of America (NYSE:) wrote in a note sent to clients, noting that in the coming week investors invested “$52.3 billion in liquid markets”.
The BofA also highlighted how several indicators are pointing towards a recession in the short term such as: the absence of an oil rally despite OPEC supply cuts, the low index, and the drop in property prices in global level.
“We remain bearish as 2023 economic uncertainty is set to end in labor market breakdown and EPS recession,” the bank added, advising clients to sell the above 4,200 points “as the stocks only price a -4% decline in EPS and 210bps of peak-to-peak rate cuts.”
“The sharp decline in wage inflation is the key to a soft landing, but we believe the risks of an EPS han landing and interest rate no landing remain elevated,” the analysts concluded.
The experts of Wells Fargo (NYSE:) wrote instead that Thursday’s rally in stocks, fueled by solid earnings reports from Big Tech, “could be part of the final pull-up.”
“We continue to expect a 10% correction in the coming months, with macro concerns weighing on sentiment,” the markets said in the daily.
From JPMorgan they sent another warning, writing in a note that it is “overvalued” and that “a strong correction is imminent.”
The strategists of the bank led by Jamie Dimon have warned that the Wall Street benchmark is at risk of correction “due to macro risks and earnings”: “We have considered the 4100-4200 zone as a key resistance zone and an area that we did not expect the market to gain sustained or significant penetration in the first half of 2023.”
Medium-term support is seen from JPM around 3,760 points, before the index can test “key levels near 3,500 in early summer”.
“We believe this will determine the bottom of the cycle, especially if the weakness is accompanied by a rapid rise in the yield curve. Until this scenario emerges, we suggest maintaining a bearish bias and remain defensive,” added the analysts.
On the upside, the highlighted resistance levels are 4,115, 4,200 and 4,239 points: “We should see a sustained break above 4,200 and a clear rotation towards cyclical leadership not only in the US, but across global markets, to make us reconsider our outlook for H1 2023. Not only has the market respected our resistance and triggered systematic sell signals to strengthen our position, but the rotation from cyclicals and the recent slide in markets like the copper and semiconductor make us even more confident in the prospects,” concluded the analysts.