NEW YORK: Wells Fargo & Co joins a growing chorus of voices that are cautioning on US stocks this week as the market heads into what is historically the worst month on the calendar for equities and upcoming midterm elections add to uncertainty surrounding the artificial intelligence (AI) trade.
The bank’s analysts, led by chief equity strategist Ohsung Kwon, warn of “broad cautiousness” heading into September as investors grow increasingly anxious about the sustainability of the AI investment boom.
The team expects capital expenditure fears around the AI build-out to peak. However, they noted, their sentiment indicator remained more positive than negative after a mid-August sell-off.
At a handful of financial firms, the mood has been shifting to a more circumspect outlook on US stocks this week.
On Monday, JPMorgan Chase & Co’s trading desk, led by Global Head of Market Intelligence Andrew Tyler, changed their outlook to “tactically cautious” on equities for the next few weeks after hawkish remarks by Federal Reserve chairman Kevin Warsh led markets to boost bets on interest rate hikes this year.
Over at Citadel Securities, Scott Rubner, the firm’s head of equity and derivatives strategy, also voiced concern about the path for equities over the next several weeks.
“The upside catalysts are becoming less obvious just as the downside catalysts are becoming more numerous,” he wrote in a note on Monday.
Like Wells Fargo’s analysts and JPMorgan’s trading desk, Rubner is not calling for a broader bearish turn, instead, he is looking for a tactical reset in the near-term. He remained constructive on the long-term outlook for US stocks.
“I would use strength to reduce some exposure and add inexpensive protection into this event window,” Rubner wrote.
Historically September is a tough time for the US stocks benchmark, even though the gauge has bucked the seasonal trend in the past two years. The index has lost 0.8% on average in Septembers over the past three decades, data compiled by Bloomberg showed.
At Wells Fargo analysts were swayed by concerns about over-investment in AI, as well as the risk of more data center moratoriums as the country heads into the midterm elections. — Bloomberg
