It is expected that the momentum of U.S. stock gains will slow down after the elections, as investors begin to take profits, according to forecasts from strategic analysts at Citigroup.
Investors had increased their bets on rising stock prices last week, leading to the highest exposure to the S&P 500 index in three years.
The buying positions in the Nasdaq 100 (focused on tech companies) and the Russell 2000 (focused on small companies) also reflect highly optimistic expectations, according to statements from strategic analysts, including Chris Montagu (Citi Bank Director).
U.S. Stock Index Expectations In a note dated November 11, Chris Montagu pointed out that “the rise in earnings of the S&P 500 and Russell 2000 indices could lead to profit-taking in the near term, which could reduce the chances of further stock gains.” Montagu also emphasized that while earnings reports have largely exceeded expectations, the current valuation of many stocks may suggest that a pullback is due.
As stock prices have risen sharply over the past several months, some analysts believe that this growth has been driven more by sentiment than by fundamental improvement, leaving little room for further upward movement in the short term.
Strategic analysts at Citigroup also highlight that the “growth rally” may face a challenge as the effects of fiscal policies, such as tax cuts and infrastructure spending under the new administration, begin to be priced in. With less clear guidance on the future trajectory of corporate tax policies or global trade relations, particularly following any geopolitical shifts, the risk of a market correction has grown.
