Renowned Bank of America analyst: US stocks have not yet fallen below key technical levels, AI stocks are worrying in the second half of the year

The US stock market experienced a dramatic shake this week, with the S&P 500 index even seeing the largest decline since September 2022 and the biggest rebound since November 2022. Wall Street major banks have expressed optimism towards the US stock market. Bank of America believes that the US stock market has not yet fallen below key technical levels, and investors still have a preference for the stock market. Goldman Sachs, on the other hand, believes that this week's sell-off has eliminated a lot of bubbles, making tech stocks and small-cap stocks more attractive. JPMorgan Chase stated that the decline in the US stock market this week is not due to poor fundamentals, but rather technical factors.

Bank of America: Not Yet Below Key Technical Levels

Bank of America analyst Michael Hartnett stated that the turmoil in global financial markets has not reached a level sufficient to trigger concerns about an economic hard landing, and the recent sharp drop in US stocks has not yet fallen below key technical levels.

Currently, despite the S&P 500 index falling by about 6% since hitting a record high in mid-July, the index is still above its 200-day moving average of around 5050 points, and the US 30-year Treasury bond yield has not dropped below 4%.

Hartnett stated,

"The technical levels that would shift Wall Street's narrative from a soft landing to a hard landing have not been breached, and investors' feedback is 'nervousness'."

He added that expectations of a rate cut by the Federal Reserve imply that investors' preference for stocks over bonds has not ended due to market turmoil.

Hartnett mentioned that the next technical levels to watch will be the Philadelphia Semiconductor Index and the 200-day moving average of the Technology Select Sector SPDR Fund.

He pointed out that these indices are currently slightly above these levels, but if they slide again, the next support level for the S&P 500 index will be the high point of 2021, indicating that the benchmark may fall another 10%.

Hartnett also reiterated his view that investors should sell when the Federal Reserve cuts rates for the first time. He expects that winners of AI trading will "struggle" in the second half of the year until returns recover.

Goldman Sachs: Sell-off Has Eliminated Many Bubbles

Luke Barrs, Head of Global Equity Portfolio Management for Goldman Sachs Asset Management, stated that the sell-off in the US stock market has eliminated many "bubbles" in the market, making certain tech stocks and small-cap stocks attractive again.

In an interview with the media, Barrs said:

"What we are focused on now is: can we buy some selected tech stocks and small-cap stocks, which we think should benefit greatly from the normalization of interest rates."

Barrs mentioned that due to overvaluation of stocks and increased industry competition, they are still reducing positions in some large cloud service providers.

He added that Goldman Sachs now expects the Federal Reserve to cut rates three times before the end of the year.

JPMorgan Chase: Decline Not Due to Fundamentals

According to a previous article by Wall Street News, compared to Goldman Sachs, JPMorgan Chase has taken a more cautious stance, believing that the decline in the US stock market may be more due to technical selling rather than fundamental factors, such as arbitrage trading reversals Morgan Stanley trader Andrew Tyler pointed out in the latest report that the fundamentals of the US stock market remain solid. Despite market volatility, the weakness in July's ISM manufacturing activity and non-farm payroll reports is not enough to trigger such a large-scale price fluctuation. US economic data shows that real GDP growth remains robust, with corporate income and profit growth exceeding expectations.

Furthermore, stock market pullbacks are a common phenomenon. According to statistics, a 5% pullback in the US stock market occurs an average of 3 times per year, while a pullback of over 10% occurs approximately once. In the recent pullback, the peak-to-trough fluctuation of the S&P was -9.7%, with a 5% pullback in April. Goldman Sachs also pointed out that historically, entering the market when the S&P 500 pulls back 5% has proven to be a very effective strategy.

Overall, Morgan Stanley believes that the worst period may have passed, and the market may see a slight increase from current levels, but more evidence is needed to confirm sustained economic growth. Large-cap stocks, defensive sectors, and cyclical sectors are worth paying attention to