Post-election run leaves S&P 500 vulnerable: Wells Fargo By Investing.com

On By Littum

Investing.com — Despite last week’s decline, the party saw a remarkable rebound after the election, driven largely by gains in technology-related companies.

But analysts on Wells Fargo (NYSE: ) warns that beneath this surface-level optimism, the market could be vulnerable to a pullback.

Through December 17, the S&P 500 was up a modest 0.38% month-to-date, in contrast to declines in other major indexes.

It fell 3.12% and small-cap fell 4.06% over the same period.

Wells Fargo attributes this divergence to weakening economic surprises, as measured by the Bloomberg US Economic Surprise Index.

The index, which measures how economic data compares to consensus expectations, has been trending downward since peaking in mid-November, and is now hovering just above zero.

“This is concerning,” notes Wells Fargo, “given the level of positive positioning that has taken place in equity markets since the election.”

They explain that investors seem overly focused on a potentially brighter future while ignoring the current disappointing data.

Wells Fargo warns that this outage may need a fix soon.

Historically, the markets may experience disillusionment after the inauguration, as high expectations collide with the realities of policy-making, says the bank.

With the S&P 500 nearing overbought territory, Wells Fargo advises investors to remain disciplined and ensure stock allocations align with recommended levels.

“We believe that now would be a good time for disciplined investors to ensure that their portfolio allocations to equities are not above recommended allocations, especially with long-term interest rates offering a solid alternative,” the firm adds.

Despite the concerns, technical indicators show that the S&P 500 remains in an uptrend. Wells Fargo highlights key support levels at the 50-day moving average (5920) and the 200-day moving average (5515), with resistance at the recent high of 6090.

Wells Fargo advises caution, concluding: “post-election rally leaves S&P vulnerable.”