Wall Street shares soared almost 30% in 5 months and the market diagnoses: correction in sight?

When consulting with analysts, they mention that a strong economic growth and some interest rate cuts would be fuel for stocks, since that translates into a bigger slice of income for companies, while profit margins could be expanded by reducing the cost of borrowing.

And the resistance of the North American economy, the hopes of interest rate cuts and the fever for artificial intelligence (AI) stocks drive the optimism of a Wall Street which does not seem to find a ceiling, something undoubtedly good for investors, but, thinking about the horizon, it may be better to consider rearranging portfolios.

It is worth remembering that the major stock market indices of the New York Stock Exchange (NYSE) recorded new all-time highs last Friday. Thus, the S&P500 is now around 27% above its low from last October, according to data from FactSet, the American software and financial data company, which shows that investors They give credit to the Fed in its fight against inflation not to cause too much damage to the economy, but they are also concerned that stocks have risen “too much” and very fast.”

The big economic data this week will be known tomorrow, Friday, and will be the price index (PCE), the inflation indicator preferred by the organization that drives Jerome Powell, who said last Wednesday that the index is expected to rise to 2.5% in February, but to remain at 2.8% annually. The data could provide clues as to when the first adjustment to the interest rate could arrive.

Overheating in sight?

In order to have a closer look at the US market, Ambit I consult a broker based in Connecticut, United States. Diego FerroCEO of M2M Capitalassures in dialogue with this medium that, “it is a fact” that the shares rose excessively. However, he explains that there are different factors that drive the meteoric rise.

He mentions as the main factor that the US economy is doing better than expected. “Many people thought that inflation was going to continue higher due to demand.but the increase in supply was underestimated, which keeps prices under lower pressure than estimated,” says Ferro.

And he explains that optimism and little diversification (almost all growth was based on the magnificent seven) They also promote that rally, although from the point of view of “earnings”, Ferro points out that the sector that contributed the most in recent months was energy.

That said, for the strategist “At some point a correction has to come.”. Now, it indicates that what is expected is that the long-awaited “soft landing“and for the Fed to lower rates, something they are pricing prices, which is why he maintains that, “call it a bubble, not yet corresponds“.

In short, it can be deduced that, of course, there are drivers to follow very closely, as well as one or another alarm signalbut nothing to worry about when clearing up doubts about a possible bubble in the AI ​​sector.

Wall Street: the view of the local market

For its part, from the City of Buenos Aires, Emilse Cordobadirector of Bell Stock Market, explains that, by taking October 2022 as a starting point, both in the S&P500 as in the NASDAQ 100 There was a performance close to 50% in the first and above 70% in the second respectively.

For Córdoba, “although warming is perceived and on the horizon it could look like a bubble”, the truth is that there are “robust, solvent and long-established” companies, which would dismiss that over concentration. “The trend of both indices remains intact, which, for long-term positions, we could follow this trend,” she says.

girl and bull from wall street.webp

The strategist’s advice is to follow the trend, “but with the radar set to rotate soon, when signs of exhaustion are perceived in the aforementioned indices, towards defensive positions”, as these assets could begin to lose strength.

Thus, if the investor has already achieved a considerable profit or according to what he expected, It would be a healthy decision to take that profit with a percentage of the holding, this means without making a sale of the entire position. “In this way, we are obtaining variable results and following the trend,” concludes Córdoba.

Who knows? Perhaps the famous “Wall Street sell in May” could be fulfilled. What was mentioned by the experts projects a “possible explosion of euphoria“typical of the end of a bullish cycle, which, from now on, should set off the alarms which indicate that portfolio rotation is close.

For that moment, Argentina is emerging as a very valid option, It’s not all Wall Street, as the market expects an auspicious second half of 2024 and 2025. Of course, if political risk remains under control along with inflation, as well as if the long-awaited recovery of the V-shaped economy arrives. These are essential conditions to think about Argy assets as a valid option.