Wells Fargo: The disconnection between U.S. stocks and economic data is intensifying, and there may be a "hangover" risk in the near future

According to the Zhitong Finance APP, 2024 is expected to be a great year for the U.S. stock market. However, Wells Fargo states that the post-election optimistic rally may lead to a "hangover" for U.S. stocks in the short term, with the S&P 500 index potentially dropping by 7%. The bank noted in a report on Monday that the disconnect between the stock market and the economy is intensifying, as U.S. stock indices rise after the presidential election while U.S. economic data remains lukewarm.

The Bloomberg U.S. Economic Surprise Index hovers slightly above zero, tracking the relationship between economic data releases and market expectations. This indicates that despite the optimism driving the market higher, there have been almost no surprises in economic data in recent months.

Sameer Samana, a senior global market strategist at the bank, stated, "We are concerned given the positive positioning levels in the stock market since the election. In other words, this suggests that investors are only focused on a potentially brighter future while completely ignoring the disappointing data at present. Ultimately, we believe this disconnect needs to be resolved."

Samana wrote that the stock market is also flashing technical signals indicating it is approaching "overbought territory," adding that investors should "be cautious of a hangover." The S&P 500 index reached a high of 5,964 points on Monday, above both the 50-day and 200-day moving averages.

Samana estimates that in the short term, the S&P 500 index may touch the recent high limit of 6,090 points. He added that if the index trends downward, it may "find support" around the 200-day moving average at 5,515 points, indicating that the index could potentially pull back by 7% from current levels.

Wells Fargo remains overall optimistic about the stock market in 2025. In a previous report, the bank projected that the S&P 500 index could end the year around 6,500 - 6,700 points, suggesting a strong backdrop of economic and corporate earnings growth.

Meanwhile, other forecasters on Wall Street believe that given the dazzling rise of the S&P 500 index this year, the stock market may decline in the future. BCA Research argues that due to stock prices being at historical highs and the potential risks of a weak U.S. economy, the stock market may enter a bear market early next year.

The European bank Societans, which has been warning about a U.S. economic recession for the past few years, still believes that the U.S. will experience a "profit collapse," with a weak labor market being clear evidence