Wells Fargo analysts believe the U.S. stock market will likely remain range-bound until the November elections.
The S&P 500 Index, which recently dropped 9.7% from its July peak to its August low, is now caught between key support and resistance levels, according to the bank.
Wells Fargo describes this as “no man’s land,” with the index stuck between support at the 200-day moving average (5,044) and resistance at the 50-day moving average (5,452).
The recent market decline was driven by weak economic data, central-bank policy divergence, and the unwinding of crowded short positions in the Japanese yen.
Despite this, Wells Fargo believes the S&P 500 remains in an overall uptrend, but significant moves are unlikely in the near term due to uncertainty around geopolitics, the upcoming U.S. elections, and the fluid economic and monetary outlook.
“While we believe the S&P 500 Index remains in an uptrend, it now finds itself stuck in no man’s land between support at the 200-day movingaverage (5,044) and resistance at the 50-day moving average (5,452),” they wrote. “Given the uncertainty around geopolitics in the Middle East, the neck-and-neck U.S. elections, and the fluid U.S. economic and monetary outlook, we find it unlikely that the S&P 500 Index will make meaningful moves either up or down in the coming month.”
Wells Fargo suggests that dynamic investors can still find opportunities within this range-bound market.
They explain that if the market moves up toward resistance, investors should consider trimming positions in less favorable areas such as emerging-market equities and sectors like Consumer Discretionary, Real Estate, Consumer Staples, and Utilities.
Conversely, if the market declines toward support, Wells Fargo says investors should add U.S. Large Cap and Small Cap Equities, along with sectors like Energy, Communication Services, Financials, Materials, and Industrials.
Analysts conclude that while the S&P 500 should find support at the 200-day moving average, resistance on the way up will likely be encountered at the 50-day moving average, suggesting a cautious but opportunistic approach until the elections.
