S&P500: Bear vs. Bull, Wall Street is Increasingly Divided

Last week, the three major U.S. stock indexes closed up cumulatively. The $S&P 500(.SPX)$ index rose for the fifth consecutive week. The index has risen by more than 26% since the low point of the bear market. In addition, both the $NASDAQ(.IXIC)$ and the $S&P 500(.SPX)$ hit their highest levels since April 2022.

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From the data point:

Earlier this month, discretionary investor positions, which include fund managers and retail investors, rose above neutral for the first time since February, Deutsche Bank data showed.

U.S. equity funds attracted $18.85 billion in net inflows in the week ended June 14

, the largest weekly net buying since mid-February 2021.

By sector, tech funds saw net inflows of $1.73 billion, the most since December 2021. Financials, consumer discretionary and industrial funds saw inflows of $581 million, $517 million and $460 million, respectively.

At the same time, a survey of market sentiment by the American Retail Investors Association showed that bullish sentiment in U.S. stocks outstripped bearish sentiment in the latest week by the largest margin since November 2021.

All in all, optimism has soared too fast, and investors who are afraid of missing out on this round of opportunities are not only chasing this round of gains, but also believe that the US stock market can continue to rise in the future.

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But the market is currently caught in a complicated moment.

The differences between Wall Street and ordinary investors are getting bigger and bigger about what will happen to the US stock market in the future.

For now, the biggest concern on Wall Street is that the rally in technology stocks is overdone.

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Richard Steinberg, chief market strategist at the Colony Group, said: "The current behavior of the market is a bit like Icarus in Greek mythology. He wears wax wings and flies higher. The closer to the sun, the closer to death. closer."

Amanda Agati, chief investment officer of PNC Financial Services Asset Management Group, said: "The market is acting quite magically. The current rally is likely to be the last hurray, and the surge will be followed by a plunge."

JPMorgan strategist Mislav Matejka said the stock market rally would come under pressure in the second half of the year if the rally in growth stocks stalls and the shift toward cyclical stocks does not continue.

Against this backdrop, strategists led by Mislav Matejka say that while they remain overweight growth stocks over cheaper so-called value stocks, they see defensive stocks as more risk-reward for the rest of the year. The sectors they recommend include healthcare, essentials and utilities.

One of Wall Street's most bearish U.S. stock market strategists, Morgan Stanley's Michael Wilson has not changed his view because of the stock market's bull market turn, saying investors may "suddenly wake up." He worries that the narrow performance of the stock market, driven by excess liquidity after the bank deposit bailout in March, has reached its limit.

Their preferred relative trade ideas include: long consumer staples over discretionary, long defensives over cyclicals, long healthcare over technology, and long operationally efficient companies over inefficient companies. Morgan Stanley also recommends avoiding highly leveraged companies as interest rates will remain elevated.

Bearish portfolio managers are already hedging their positions because they don't want to miss out on the artificial intelligence boom that helped fuel the recent gains in U.S. stocks, said Eric Sterner, chief investment officer at Apollon Wealth Management. "The current U.S. stock market is overvalued, like a fragile house built of cards, because the rally relies on large technology stocks to drive."

The next test for stocks could be the Federal Reserve's next rate decision, which will tighten policy further in July, which could end up being the catalyst for a market correction.

Still, some investors remain optimistic, even as they anticipate some short-term pain ahead. Sylvia Jablonski, chief executive and chief investment officer of Defiance etf, said: "I think that at the end of this year, US stocks will rise, not fall. However, I don't think it will rise another 20% or 30%."