Ed Clissold, chief US strategist at investment research firm Ned Davis Research, forecasted that US stocks will likely experience short-term correction and volatility before resuming a year-end rally for the remaining period of this year. Clissold diagnosed that US stocks, which rallied for several months as tensions between the US and Iran eased since April and corporate earnings remained strong, recently entered a consolidation phase due to profit-taking. The strategist explained that investor sentiment weakened somewhat as profit-taking emerged centered on semiconductor and memory-related stocks, and military conflict with Iran resurfaced. The S&P 500 index fell less than 1% from recent highs and still trades approximately 8% above its 200-day moving average, maintaining its long-term uptrend.
S&P 500 Cycle Composite Indicates Mid-August Volatility and Early October Correction
Clissold presented technical indicators as the basis for his market outlook. The 'S&P 500 Cycle Composite,' which reflects historical and seasonal flows, suggests a path where volatility continues until mid-August, followed by one additional correction in early October, before the year-end rally resumes. Clissold stated that "if there are no additional unexpected shocks, this flow is the most realistic scenario."
Ned Davis Research Asset Allocation Model Recommends 70% Stock Weighting
The asset allocation model continues to recommend increasing stock exposure. Ned Davis Research's US asset allocation model presented a 70% stock weighting as of the end of June. This represents the highest level in the past four years, with recommendations of 25% bonds and 5% cash. However, the model that synthesizes momentum, investor sentiment, and monetary environment entered a bearish phase at the end of June. Clissold explained that "based on current evidence alone, no large-scale warning signals have appeared" and "most major constituent indicators such as momentum, market breadth, and investor sentiment maintain neutral levels."
Market Breadth Signals Show Mixed but Mostly Positive Trends
Clissold assessed that market breadth indicators show mixed signals. He analyzed that while market breadth recording an all-time high earlier this month could be a precursor to a cyclical peak, the fact that over 70% of S&P 500 sectors still maintain long-term uptrends is positive. Clissold stated that "even if seasonal weakness appears, it should be interpreted as a correction occurring within the current cyclical bull market."
FAQ
What did Ed Clissold forecast for US stocks for the remaining period of this year?
Ed Clissold, chief US strategist at Ned Davis Research, forecasted that US stocks will likely experience short-term correction and volatility before resuming a year-end rally for the remaining period of this year.
What stock allocation does Ned Davis Research's asset allocation model recommend?
Ned Davis Research's US asset allocation model presented a 70% stock weighting as of the end of June, the highest level in the past four years, with 25% bonds and 5% cash.
