Analysts offered mixed signals on the S&P 500’s near-term outlook, making a Santa rally uncertain, pointing to potential volatility, amid atypical seasonality and rising bearish options sentiment.
Analysts See Volatility Even As Yardeni Eyes S&P At 7,000
However, RBC's Amy Wu Silverman told Yahoo Finance on Monday that markets have not followed typical seasonal patterns this year, making a traditional Santa rally uncertain. She noted rising bearish sentiment in the options market, with investors increasingly buying downside protection instead of relying on usual year-end strength, suggesting the likelihood of another bout of volatility.
Meanwhile, Omar Aguilar, CEO and CIO of Schwab Asset Management, warned of growing underlying risks, noting significant discrepancies in recent post-shutdown economic data and early signs of sector rotation.
Aguilar said that "the opportunities for a catalyst” that will drive the market up did not seem to be very strong this time.
However, market veteran Ed Yardeni of Yardeni Research had predicted that the S&P 500 could hit 7,000 by the end of the year. crossing the record high of 6,920. Later, he added that this could happen “this coming week” as the index needs to just rise over 2% to reach this level.
Events In Question This Month
The market’s resurgence is attributed to the possibility of another rate cut later in the month, despite previous hints of a more cautious approach by some policymakers. The situation could be further influenced by Trump’s announcement of his pick for the next Federal Reserve chair, following the end of Jerome Powell‘s term in May.
Meanwhile, a closely watched special election in Tennessee could also have an impact on market dynamics. The race, which will be decided on Tuesday, is between Republican Matt Van Epps and Democrat Aftyn Behn.
One of the key drivers of the current market rally is the historic surge in artificial intelligence (AI) investment, which has been crucial in sustaining the U.S. economy. Without this massive capital infusion, the U.S. would have been in a recession, highlighting the pivotal role of AI in the current market dynamics.
Moreover, the current market rally aligns with a bold prediction made by BCA Research five years ago, which forecasted the S&P 500 to reach 7,000 by 2028. This prediction, made during a time of global economic uncertainty, has proven to be remarkably accurate, underscoring the resilience of the U.S. equity market.
President Donald Trump's unexpected April tariff announcement, combined with ongoing concerns over AI valuations, drove markets to record highs before renewed volatility hit. Analysts say the usual investing rules have failed this year, as AI-driven disruption is reshaping markets in ways not seen in the past decade.
Price Action: The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, were up 16.89% and 21.37%, year-to-date, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
