Even with bond yields hovering at more than 20-year highs, the stock market has barely flinched.
The S&P 500 (^GSPC) rose Friday to within 1% of its record while the Nasdaq Composite (^IXIC) was near an all-time high as a weak jobs report lowered expectations for a Federal Reserve rate hike this year.
So far, high oil prices, AI risks, and deteriorating market breadth suggest a pullback may be imminent.
“The market has had every reason to sell off, and it hasn’t done so yet, and I feel like time is running out,” Sean McLaughlin, chief options strategist at All Star Charts, told Yahoo Finance. “The path of least resistance seems to be higher.”
Seasonality is also optimistic as the month of October, while traditionally volatile, has had a 63% win rate over the past 20 years.
And looking at the four-year presidential cycle, the S&P 500 has returned an average of 18.3% over the next seven months over the past 50 years, McLaughlin noted.
“We have earnings season coming up, and if we have even the slightest glimmer of good news, I think the market is going to be caught offside, and we could have a really significant rally over the next three to six months,” McLaughlin said.
7,722.72 +56.27 (+0.73%)
Closing: October 2 at 4:59:13 p.m. EDT
^GSPC ^IXIC
That’s not to say market resilience hasn’t been a headache, especially as the 10-year Treasury yield rose to its highest level since 2002.
Wall Street expects 10-year yields could rise before they start to weigh on valuations.
“Historical data shows that valuations start to compress after 5.5% and everyone from investors to businesses to consumers should recalculate their investments,” Fundstrat economic strategist Hardika Singh wrote in a note last week.
UBS strategists noted last week that returns become more of a concern for stocks when economic growth begins to falter. This is not the case with the burgeoning development of AI in the United States.
“We forecast S&P 500 earnings growth of 25% this year and 14% in 2027, which should help stocks absorb moderately higher interest rates,” wrote Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities at UBS.
To spread risk, Hoffmann-Burchardi recommends buying stocks in global markets such as the United States, Europe and Asia.
At the same time, she suggests targeting key growth trends such as AI, energy and resources, and healthcare (XLL).
Ines Ferre is a senior economics reporter for Yahoo Finance.
Click here for the latest technology news that will impact the stock market
Read the latest financial and business news from Yahoo Finance
Gn bussni
