BCA Research strategists believe that the S&P 500 has likely reached its peak for 2024.
Despite recent market activity, including rallies that have sparked a sense of cautious optimism among some investors, BCA's analysts believe that the high watermark has already been set.
This conclusion emerged from a recent trader's inquiry, which asked BCA Research whether the S&P 500’s July 16 intraday high of 5,669.67 or its August 5 low of 5,119.26 would stand as the year’s peak or trough.
The firm’s strategists, along with the majority of participants in a roundtable discussion, leaned heavily towards the former, with 55% agreeing that the July high will remain the year's top, and 37% suggesting that neither the high nor the low has yet been firmly established.
BCA described last week’s equity market rebound as a “false sigh of relief.” While it acknowledges that the current trading environment is fertile, the indicators that usually predict financial trends are warning of trouble ahead, suggesting that any rallies will be “short-lived.”
Strategists believe that “only traders and the nimblest investors should participate from the long side while the rest steer clear.”
“Investors don't have to sprint for the exits, but they should underweight risk assets before hope is fully wrung out of investment outlooks,” BCA’s report states.
“We recommend embarking on a strategy of legging out of risky positions and into defensive ones now.”
The firm’s conviction that the S&P 500 has already peaked is underpinned by a broader economic outlook that has soured in recent weeks.
Data points such as the disappointing manufacturing ISM report and weaker-than-expected employment figures have dented the optimism surrounding a potential soft landing for the U.S. economy.
A narrow majority of BCA's roundtable participants now foresee a recession within the next twelve months. Specifically, 53% of respondents said they expect the U.S. economy to fall into recession, while 19% called for a “soft landing” and 28% for “no landing.”
BCA strategists see a possibility for the S&P 500 to recover some losses if upcoming economic data shows modest improvement. Investors hoping for a soft landing are likely to seize on even slightly positive news, especially with key events like the Fed's stance at Jackson Hole and the next employment report on the horizon.
However, BCA warns that the market's optimism is fragile and based on a shaky foundation, adding that the economic consensus has not yet fully adjusted to the ongoing slowdown.
Investors are expected to need significant evidence before changing their views, and BCA predicts that it might take until the end of summer for clear signs of a recession to dispel the soft-landing narrative.