In the coming weeks, Wall Street will get a better sense of whether the recent stock market rally can continue or if it’s about to stumble, according to Bloomberg. Indeed, investors will be preparing for jobs reports, inflation data, and the Federal Reserve’s next interest rate decision. All of this will happen within the next 14 trading sessions and could set the tone for the rest of the year. In addition, the S&P 500 (SPY) just had its smallest monthly gain since July 2024 and is entering September, which has historically been the worst month for the market.
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Adding to the uncertainty, market volatility has been unusually low. In fact, the Cboe Volatility Index, also known as VIX (UVXY), has only risen above the important 20 level once since late June, and the S&P 500 hasn’t dropped more than 2% in over 90 trading days, which is the longest calm stretch since last July. However, this calm has some of Wall Street’s biggest optimists starting to feel uneasy. For example, Thomas Lee from Fundstrat expects a 5% to 10% pullback this fall before the S&P 500 rises again to between 6,800 and 7,000.
At the same time, concerns about high valuations are growing. More specifically, the index now trades at 22 times expected earnings, which is a level that was only exceeded during the dot-com bubble and the tech rally after COVID-19 in 2020. Meanwhile, longtime bull Ed Yardeni questions whether the Fed will cut rates in September at all. If inflation comes in high and job growth is strong, traders may rethink the odds of rate cuts, which could lead to a short-term selloff. Still, many traders are betting that this calm will last, with hedge funds shorting the VIX (SVXY) at levels not seen in years.
Is SPY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY based on 418 Buys, 78 Holds, and eight Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $720.37 per share implies 11.7% upside potential.
