Wells Fargo analysts believe the U.S. stock market is likely to remain rangebound until the November election.
The bank said the pound, which recently fell 9.7% from its July peak to its August low, was now stuck between key support and resistance levels.
Wells Fargo describes this as “no man’s land,” as the index remains stuck between support at the 200-day moving average (5,044) and resistance at the 50-day moving average (5,452).
The recent market decline was driven by weak economic data, divergent central bank policies, and the unwinding of crowded short positions in the Japanese yen.
However, Wells Fargo believes the S&P 500 remains in a broad uptrend, but major moves are unlikely in the near term due to uncertainty over geopolitical conditions, the upcoming U.S. election, and changing economic and monetary outlooks.
“While we believe the S&P 500 remains in an uptrend, it now finds itself stuck in a no-man’s land between support at the 200-day moving average.
“The price average (5044) and resistance at the 50-day moving average (5452),” they wrote. “Given the uncertainty surrounding geopolitics in the Middle East, the close US election, and the changing US economic and monetary outlook, we find it unlikely that the S&P 500 will make any meaningful moves either up or down in the coming month.”
Wells Fargo notes that dynamic investors can still find opportunities within this narrowly ranged market.
They explain that if the market moves towards resistance, investors should consider reducing their positions in less favorable areas such as emerging market stocks and sectors such as consumer discretionary, real estate, consumer staples and utilities.
Conversely, if the market dips toward support, Wells Fargo says investors should add large- and small-cap U.S. stocks, along with sectors such as energy, telecommunications, financial services, materials and industrials.
Analysts conclude that while the S&P 500 is expected to find support at the 200-day moving average, it is likely to face resistance on the upside at the 50-day moving average, suggesting a cautious but opportunistic approach until the elections.
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