Goldman Sachs (GS) strategist John Flood says that U.S. stocks could see a short-term drop, even though he still expects the market to end the year much higher. As a result, he believes that any decline should be seen as a buying opportunity rather than a reason to panic. Still, he warns that market conditions are starting to look stretched after the strong move higher. One key reason is that large institutional investors may begin selling instead of buying.
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New trading tool for QQQ bullsFor example, commodity trading advisers recently bought about $53 billion worth of stocks, but are now holding around $32 billion and are no longer adding to positions. If the market stops rising or starts falling, they could switch to selling, which would increase pressure. In addition, pension funds are expected to rebalance at the end of the month, which could lead to more than $25 billion in stock sales. In fact, this would be one of the biggest monthly selling events in decades.
On top of that, hedge funds are becoming more cautious. Many have reduced risk by cutting both their long and short positions, and overall trading activity has slowed for the first time in 13 weeks. Meanwhile, the recent rally has pushed major indexes like the S&P 500 (SPY) and Nasdaq-100 (QQQ) into overbought territory, which means that prices may have risen too quickly. Gains have also been concentrated in a small group of large tech stocks, which makes the market more fragile. Because of this, stocks could be more vulnerable to a pullback, especially with major earnings reports coming soon.
Is SPY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY stock based on 408 Buys, 86 Holds, and nine Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $831.10 per share implies 16.8% upside potential.
