Wells Fargo Warns: S&P 500 Unlikely to Break Summer Record

After a strong market that kept setting new highs in the first half of the year, U.S. stocks seem to have taken a breather in July, falling into a period of significant volatility.

On Wednesday of this week, U.S. stocks briefly fell at the open after being impacted by the CPI data, then fluctuated upwards, and finally achieved a V-shaped rebound, marking three consecutive trading days of gains. They rebounded significantly from last Friday's low, with only about a 2% gain needed to reach the previous historical high.

However, Wells Fargo still believes that U.S. stocks may not be able to break through the record high set this summer in the short term - that is, 5,669.67 points. The continuous rise that has lasted for several months may have to take a temporary break.

Wells Fargo strategists warn that U.S. stocks are unlikely to rise sharply in the next few months. In their view, the stock market is already valued at the most reasonable level.

In the first half of this year, U.S. stocks have been on a path of setting new highs, until mid-July when the S&P 500 index reached a record high of 5,669.67 points, then began to fluctuate and fall. As of Wednesday's close, the S&P 500 index was trading around 5,554 points.

Currently, as U.S. inflation has significantly cooled down and a rate cut by the Federal Reserve in September has become a foregone conclusion, investors are looking forward to the subsequent trend of the U.S. stock market. However, according to Wells Fargo, three unfavorable factors will limit the gains of the S&P 500 index and prevent it from breaking through the previous high.

These three factors are geopolitical tensions in the Middle East, doubts about whether the U.S. economy can avoid a recession, and concerns that the rebound in artificial intelligence may lose momentum.

Since the beginning of this year, it has been the market's extremely high expectations for artificial intelligence and Federal Reserve rate cuts that have driven U.S. stocks to continuously set new highs. But now, investors' enthusiasm has waned: concerns about U.S. economic growth have overshadowed the excitement about rate cuts, and skepticism about the sustainability of the artificial intelligence boom has dampened bullish sentiment for tech stocks.

In the latest AAII Investor Sentiment Survey, about 45% of investors said they are optimistic about the stock market for the next six months, down from 51% a month ago.

In addition, as the November U.S. election approaches, the volatility of U.S. stocks may also increase.

Historically, election years usually mean greater stock market volatility, and investors need to assess the uncertain political situation — considering that this year's presidential candidates Kamala Harris and Donald Trump are still neck and neck in the latest polls, this uncertainty is even more intense.