Wall Street Firms Warn: Stock Sell-Off Threatens Gains

Some Wall Street analysts are sounding the alarm for a coming sell-off in stocks. That comes as the S&P 500 enjoys its best year since 1927, gaining 18% from January.

Photo Insert: Inflation, though cooled from highs last summer, could produce more surprises while the recent stock run-up is showing signs of a bubble.

But a closer look at inflation and the hype for AI shows a grim outlook, experts say, Jennifer Sor reported for Business Insider.

Stocks so far have blown past investors' expectations for 2023 – but some analysts are bracing for a sell-off as the market approaches new highs. That comes as the S&P 500 enjoys one of its best years since 1927, largely thanks to Wall Street's excitement for artificial intelligence.

After sliding 20% last year, the benchmark index is now up 18% from the start of 2023 and is just 6% away from retouching its all-time high of 4,796, which it notched in January 2022.

David Rosenberg, who heads Rosenberg Research, pointed to the Dow's recent 13-day winning streak, which was the longest since 1987. Back then, the Dow gained 28% over a period of 13 days, Rosenberg noted, before the index sank 19% in October that year.

He dismissed the uptrend in stocks as another short-lived "FOMO-based" rally.

"The giddiness was omnipresent as is the case today and the bears were laughed at … but look at how the year ended … FLAT!" Rosenberg said in a recent note to clients.

But some forecasters warn inflation, though cooled from highs last summer, could produce more surprises while the recent stock run-up is showing signs of a bubble. The hype for artificial intelligence is creating a bubble in stocks that could soon be at risk of bursting, according to JPMorgan's Marko Kolanovic.

There's too big of a risk that inflation could rebound, according to Well Fargo's chief global market strategist Scott Wren, who believes the risk-to-reward tradeoff of entering the market at this point is poor.

BlackRock, the world's largest asset manager sees "rollercoaster inflation" ahead as prices enter a period of volatility. That's bad news for stocks: High inflation raises costs for firms, weighing on profits. But falling inflation lowers prices that firms charge, which is also a negative for profits.

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