Wells Fargo analysts are urging investors to be selective in their equity investments, advising them to "buy stocks, not the stock market."
This guidance comes as the S&P 500 (SPX) faces a slight downturn, with the index down 0.5% for the week but still up 12% year-to-date. Despite a 3% selloff on Monday, market sentiment improved as decent jobless claims data helped counter fears of a hard-landing recession.
The Wells Fargo analysts remain cautious about the broader market, citing "traditional pre-Fed trends" and the lack of immediate catalysts as reasons for their tempered outlook.
They maintain a year-end SPX target of 5535, implying a modest 4% upside from current levels. However, they are not advising a broad-based dip-buying strategy at this time, due to this week's events and ongoing uncertainties.
Instead, Wells Fargo sees specific opportunities, particularly in the Communication Services sector, which has experienced a 9% pullback.
They highlight stocks like Meta (NASDAQ:META), Google (NASDAQ:GOOGL) (GOOG), and Netflix (NASDAQ:NFLX) as attractive picks that appear on their momentum screens.
The analysts also note that momentum stocks have had a rough July but are starting to rebound. They expect "Quants, Growth, and opportunistic PMs" to begin adding to names with positive price momentum that are currently "on sale."
Finally, Wells Fargo points out the underperformance of the Russell 2000 index, calling it "one of the best short sellers." They observe that many small-cap "meme stocks" have seen significant declines after their initial surge, a trend consistent with past reconstitutions of the index.meta