Investing.com — Wells Fargo strategists believe investors should prepare for more market volatility as the selling season approaches, amplified by the upcoming election cycle.
Historically, the period from late summer to early fall has been marked by significant declines in the stock market. Over the past seven years, the bank has consistently experienced selloffs of 5% to 20%, and the investment bank predicts this trend will likely continue in 2024.
Contributing to the uncertainty are the closely contested US elections, which are expected to increase market volatility.
“A tightly contested and open election in which the incumbent president is not seeking re-election, as we currently have, only increases uncertainty,” strategists said in the note.
“We believe that periods of volatility are likely in the coming months as stocks move sideways and struggle to reach meaningful new highs.”
However, Wells Fargo suggests that this period of volatility could present opportunities. The company recommends that investors have a “shopping list” ready if the market hits recent lows, pointing to sectors such as large-cap U.S. stocks and specific segments such as communications services, energy, financials, industrials and materials within the S&P 500 .
“We think US small-cap stocks could also be an attractive option to add exposure to market lows if the portfolio is under-allocated to this asset class,” strategists said.
On the other hand, it may be wise to reduce positions in overexposed sectors such as consumer discretionary, consumer staples, real estate and utilities if the market reaches recent highs.
Looking beyond 2024, Wells Fargo is optimistic about its longer-term prospects.
After the elections, the company expects the economy to shift from the current slowdown to sustainable growth in 2025, driven by an earnings recovery and a rebound in stock prices. The report advises investors to keep an eye on 2025 when making decisions in the coming months.
“Simply put as a campaign slogan: “Keep an eye on ’25,” the bank concluded.
The S&P 500 managed to post a modest gain during a quiet trading session on Monday, while the price fell, pressured by a decline in technology stocks. Investors were weighing the chances of a bigger-than-expected rate cut by the U.S. Federal Reserve later this week.
The S&P technology index, which has been the strongest of the eleven major S&P sectors this year, fell 0.95%, making it the biggest loser of the session.
