Expectations from Wall Street

The U.S. stock market has rallied this year, with the S&P 500 gaining 21 percent through July, but in August the rally stalled after a flurry of economic data and statements from Federal Reserve officials fueled fears that the U.S. central bank Unite will keep interest rates higher for longer than expected, which has led to a rise in longer-dated government bond yields.

History shows that August is typically not a good month for stocks, and the same is true for September, especially in the year leading up to the US presidential election, according to Business Insider. But, in the current context, it is not only about history, according to the American publication. The Federal Reserve remains hawkish even after eleven interest rate hikes, and investors have extended their horizon for potential cuts into next year. Bond yields have risen, with 10-year Treasury yields reaching their highest level since 2007 just last month.

The equity risk premium, which quantifies the extra return investors can expect for owning stocks over bonds, has shrunk to its lowest level since 2009, which some analysts say is a wake-up call for stocks. Abroad, China's economic woes are causing fears in markets around the world as Russia continues its war against Ukraine, Business Insider also notes.

Here's what some of the biggest names on Wall Street have to say about the evolution of the US stock market in the coming months.

• JP Morgan

Dubravko Lakos, JP Morgan's chief global equity strategist, told CNBC after Fed Chairman Jerome Powell's Jackson Hole speech that this year's market rally is over and investors' current positioning shows they are too bullish.

In his view, the central bank of the United States will not relax its monetary policy anytime soon, and the Fed's "hawkish" approach will eventually put an end to short-term gains in stocks. According to the strategist, the resilience of the US economy so far has only delayed the onset of a recession, and the hard landing scenario is inevitable.

"I find it hard to believe that inflation is going to go down, the Fed is going to cut rates, and (economic) growth is going to be OK," Lakos said on CNBC, quoted by Business Insider, last week.

• Morgan Stanley

According to Mike Wilson, chief investment officer of Morgan Stanley, the fact that Nvidia shares did not rally (after reporting excellent second-quarter results) is a reason to temper the outlook for the stock market. Like Lakos, the Morgan Stanley executive is not optimistic about the rest of the year, according to the American publication.

"Remember markets make highs on good news and lows on bad news," Wilson said in an Aug. 25 interview with Bloomberg. "I can't imagine better news than what we got from Nvidia ... and yet the rally failed. This is another negative technical signal that the rally is over. We're going to need a story that excites people, and I don't know what that story is."

In his opinion, in the market growth that started in March being led by a few names in technology, such as Nvidia and Tesla, more and more companies have recently started to participate, but for no obvious reason. The strategist believes the appreciation is unsustainable and only the Fed's monetary policy decisions can sustain another rally.

Contrary to Wilson, Andrew Slimmon, a senior portfolio manager at Morgan Stanley, sees the S&P 500 index approaching the 5,000 mark by the end of the year, equivalent to an increase of about 11% from last Thursday's quotation. "As we approach the end of the year, the pain from reduced equity exposure and the resulting lack of performance will intensify, forcing inflows," Slimmon told CNBC last week.

• Fundstrat

Tom Lee, managing partner and head of research at the market analysis and strategy firm Fundstrat, which this year has made a number of predictions about market growth that have come true, believes that the S&P 500 index is about to it leaves August's decline behind, according to Business Insider.

Contrary to the opinion of many market analysts, Lee expects a rise in the S&P 500 in September, which would take the index to a new high for 2023. In his view, the cooling economy, the lack of interest rate hikes by the Fed and excessive negative investor sentiment are reasons based on which September is expected to be a good month for stocks.

• Wedbush

Dan Ives, a senior analyst at Wedbush, believes that "a massive wave of AI-driven spending" is about to fuel another surge in tech stocks, according to Business Insider. "We believe that despite 10-year Treasuries and the Fed, technology will go higher," Ives wrote in a note to clients last week. pointing out that one reason to remain bullish on the technology is Nvidia beating its estimates.

"The growth based on artificial intelligence is like the trajectory of a rocket ship, which will hit the shores of the technology industry in the next twelve to eighteen months," the analyst also wrote, thus characterizing his optimism regarding tech stocks.

• David Rosenberg

David Rosenberg, founder and chairman of Rosenberg Research, believes economic pressures and rising government bond yields will drive stocks lower. "The second round of the stock market decline is coming," he said, quoted by Business Insider. "Cash is king".

In his view, a robust labor market can prevent the unemployment rate from rising, so the Fed, in an attempt to further cool the economy, can operate further interest rate hikes. Discretionary and IT, the two sectors that have supported the S&P 500's gains this year, are on track for their weakest month of the year, according to Rosenberg Research's president.

CFRA Research

• Sam Stovall, chief investment strategist at CFRA Research, notes that September has historically been the weakest month of the year for the S&P 500, according to MarketWatch.

"Since 1945, the S&P 500 Index had a negative average monthly return of 0.73% in September, the weakest performance of any month (year-to-date). It was also the only month in which the S&P fell more often than it rose, with a "win rate" of just 44%.

At the same time, September is the only month in which the Nasdaq Composite had a negative average return since 1971. According to CFRA data, the technology index rose 52% of the time during this period, with an average negative monthly return of 0.86%. "Given the performance of the indices in September, we are telling investors to prepare for the possibility of disappointing results for both the S&P 500 and the Nasdaq," Stovall said, as quoted by MarketWatch.

From the beginning of this year to the end of last month, the S&P 500 index was up 17%, while for the Dow Jones the appreciation was about 5%. The Nasdaq Composite, of companies active in knowledge-intensive fields, had an appreciation of 34%.