We’ve Already Seen the S&P 500’s High: BCA

BCA Research strategists are of the opinion that the market has likely hit its peak for 2024.

Despite some recent market movements that have generated a sense of cautious optimism among investors, BCA’s analysts believe the highest point has already been established. This perspective was shaped by a recent inquiry from traders, which asked BCA Research whether the S&P 500’s intraday high of 5,669.67 recorded on July 16, or its low of 5,119.26 on August 5, would serve as the year’s peak or trough.

During a roundtable discussion, a significant majority of the firm’s strategists leaned toward the former, with 55% believing that the July high will remain the year’s top, while 37% suggested that neither the high nor the low has been definitively established.

BCA characterized the recent rebound in equity markets as a “false sigh of relief.” While the firm acknowledges the current trading environment as potentially promising, the indicators that often forecast financial trends are signaling possible challenges ahead. This suggests that any rallies are likely to be short-lived.

Strategists advise that only traders and the most agile investors should consider long positions, while others should exercise caution. BCA’s report suggests, “Investors don’t need to panic, but they should reduce their exposure to risk assets before hope is entirely squeezed out of the investment outlook.”

The firm advocates for gradually shifting from risky positions to more defensive ones at this time. Their belief that the S&P 500 has peaked is reinforced by a deteriorating economic outlook observed in recent weeks.

Disappointing data points, including a lackluster manufacturing ISM report and weaker-than-expected employment statistics, have dampened the optimism surrounding a potential soft landing for the U.S. economy. A slim majority of BCA’s roundtable participants now anticipate a recession within the next year, with 53% expecting an economic downturn, 19% forecasting a “soft landing,” and 28% predicting “no landing.”

However, BCA strategists acknowledge the possibility of the S&P 500 recovering some losses if forthcoming economic data reveals modest improvements. Investors hoping for a soft landing could be encouraged by even slightly positive news, particularly with important events such as the Federal Reserve’s meetings at Jackson Hole and the next employment report approaching.

Nonetheless, BCA cautions that the market’s optimism is tenuous and built on an unstable foundation. They observe that the economic consensus has yet to fully adapt to the ongoing slowdown. Investors may require substantial evidence before altering their perspectives, and BCA anticipates that clear signs of a recession might not emerge until late summer, challenging the narrative of a soft landing.