Monty Rakusen
The S&P 500 (SP500) is due for a pullback and investors should trim large cap equities and rebalance their portfolio, according to a note by Wells Fargo Investment Institute.
Sameer Samana, senior global market strategist at Wells Fargo, wrote that due to the “gauntlet of events that could serve as inflection points in the coming months” such as Fed meetings, the U.S. presidential election and other international elections, coupled with geopolitical developments and the economic data, “there is a good probability that a trimming of U.S. large cap equities (SP500), (DIA), (QQQM) and portfolio rebalancing might be in order.”
The S&P 500 (SP500) was up 10.5% from its April 19 lows, as of July 1. Mega-cap tech stocks, related to artificial intelligence, are the ones driving this upside. On the other hand, the S&P 500 Equal Weight Index (RSP) was up only 2.4% during the same period.
This suggests that many stocks are left behind in the rally, and the weighted index (SP500) is overbought, according to its relative strength index, noted Samana.
“We believe this combination of narrow market leadership and acceleration to the upside leases the S&P 500 Index (SP500) vulnerable to possible disappointment, which could precipitate a pullback.”
The S&P 500 (SP500) is up 16.82% year-to-date, and up 4.57% from a month ago.