S&P 500 Expected to Remain Range-Bound in the Coming Months: Wells Fargo

The S&P 500 (SPX) index is expected to experience range-bound trading in the upcoming months, as indicated by strategists from Wells Fargo in a note released on Wednesday.

Currently, the SPX is hovering near its record high of 5,667 reached in mid-July, while the yield on the 10-year Treasury note has dipped below 3.7%, falling outside the bank’s targeted range for the end of the year.

Despite the rise in both stock and bond prices, the strategists voiced concerns that these valuations may be stretching beyond what the underlying fundamentals can sustain.

Given the impending presidential election and a historical trend of weaker equity performance during this period, the Wells Fargo team believes investors should brace for possible market volatility.

In response to these market dynamics, the firm has adapted its investment strategy, reallocating funds from short- and long-term fixed-income investments to intermediate maturities and equities. Additionally, they have upgraded their rating on small-cap equities from Underweight to Neutral, although they still favor large-cap stocks over the Russell 2000 Index.

The strategists predict economic weakness in the near term, followed by a gradual recovery. They anticipate that the Federal Reserve will initiate a series of rate cuts totaling 175 basis points by the close of 2025.

“We expect these Fed cuts to positively impact the economy and the markets in 2025,” the strategists remarked. “The global economy is also likely to benefit, as major central banks worldwide are either cutting rates or preparing to do so.”

Amid current uncertainties, including seasonal market patterns and a tightly contested presidential race, the strategists suggest that the S&P 500 Index may trade within a set range in the coming months.

They recommend that investors consider reducing exposure to less favorable sectors, such as Real Estate, Utilities, Consumer Discretionary, and Consumer Staples, when the index approaches the higher end of its trading range.

Conversely, if the market declines toward recent lows, they suggest that investors allocate sidelined funds into sectors like Energy, Communication Services, Financials, Industrials, and Materials. The strategists believe these sectors offer stronger balance sheets, more reliable cash flows, and more attractive valuations.

“Uncertainty often presents opportunities. We believe 2025 may provide investors with a chance to capitalize on an improving economy supported by Fed rate cuts,” they concluded.

“The objective is to seize opportunities now and in the months ahead to make adjustments in equities and fixed-income holdings that could enhance performance in the upcoming year.”