Piper Sandler analysts are warning investors of a possible correction in the , despite recent highs. Their note highlights a weakening market that could lead to a significant pullback.
In today’s note warning of a possible correction, Piper Sandler stated: “Deteriorating market breadth and declining leadership” are the top concerns.
This means that fewer stocks participate in the rally and that investors focus on a limited group of well-performing companies. They argue that this undermines the sustainability of the current upturn.
However, it goes against a separate note from the company this week, which said analysts believe Wall Street will remain bullish until unemployment reaches 4.5%, and that they remain constructive. Still, they pointed out that most market declines come from higher interest rates or unemployment.
Nevertheless, Piper Sandler says the technical indicators also point to a correction. Piper Sandler’s ’40-week Technique Indicator’ shows a small number of stocks trending positively, indicating weaker internal market conditions.
While the recent jobs report could lead to a Fed rate cut, Piper Sandler says other factors are concerning.
“The MID and RTY are below their 50-day MAs and poised for a move lower toward their respective 200-day MAs,” the firm said, indicating a potential decline in mid-cap and small cap shares.
Despite maintaining its year-end target, Piper Sandler expects a “deeper pullback/correction in the coming months.” They believe that the S&P 500 is overdue for a 10% correction in the direction of the long-term upward trend. In conclusion, Piper Sandler advises investors to be cautious. Current market dynamics indicate that a correction is likely, and investors should prioritize vigilance over complacency.
