US stocks are approaching historical highs, but BTIG warns of market facing unstable risks. September and October are usually difficult months, despite the rise in stock indices, the market may correct due to the lack of normal seasonal weakness. Analyst Krinsky pointed out that the market may experience a 'buy the rumor, sell the fact' scenario in the next two weeks. Wells Fargo and Barclays Bank also express concerns about short-term risk-return and advise investors to adopt a wait-and-see approach
Despite the US stock market nearing historical highs, this has not eased BTIG's short-term ominous forecast.
September and October are usually difficult months for the US stock market, but this year the market has seen astonishing breakthroughs.
The three major US stock indexes closed higher in September, and October is also expected to see gains. The Dow Jones Industrial Average rose by about 1.6% this month, the S&P 500 Index rose by 1.7%, and the NASDAQ Composite Index rose by over 2.2%.
However, according to BTIG, the market now finds itself in a precarious position.
Jonathan Krinsky, Chief Market Technician at the company, wrote in a report on Monday, " As the stock market has not experienced the normal seasonal weakness, the market may have needed a correction long ago. At this point, we have to assume that the recent strength is borrowed from the typical post-election rebound. This has resulted in a very low risk-reward ratio."
Krinsky said, "Either we are experiencing the typical pre-election tension, which means the market could become quite unstable in the next two weeks, or we are seeing the classic 'buy the rumor, sell the fact' scenario post-election. The likelihood of a smooth upward market in the next 2-4 weeks is very low."
In fact, the market's performance this week seems to have already reflected Krinsky's views. Due to investors unwinding expectations of a December rate cut by the Federal Reserve, the market saw selling on Monday. Additionally, many investors believe that the bull market rebound may be tested before the US presidential election.
In a report on Tuesday, Wells Fargo analyst Christopher Harvey wrote, "Regardless of the outcome, the US election will trigger a 'sell the fact' response. The stock performance leading up to this election is inconsistent with recent history, which in our view makes the risk-reward ratio unattractive in the short term," Harvey explained.
Barclays agrees with BTIG's view and has changed its overweight recommendation on global risk assets over the past few weeks. "While the macroeconomic outlook remains optimistic, we now advise a wait-and-see approach."
In a recent report to clients, Barclays wrote, "We believe investors may also do the same. The rebound in risk assets is likely to stall in the coming weeks."