Market Summary

Despite a decline last week, the S&P 500 saw a notable post-election rally, primarily driven by gains in technology-related companies.

However, analysts at Wells Fargo (NYSE:WFC) warn that beneath this optimism, the market could be at risk for a pullback.

As of December 17, the S&P 500 recorded a modest gain of 0.38% month-to-date, in contrast to declines in other major indices:
– The Dow Jones Industrial Average fell by 3.12%
– The small-cap Russell 2000 Index dropped by 4.06%

Wells Fargo attributes this divergence to a decline in economic surprises as measured by the Bloomberg U.S. Economic Surprise Index. This index, which compares economic data to consensus expectations, has trended downward since peaking in mid-November, currently sitting just above zero.

Wells Fargo notes, "This is concerning given the level of positive positioning that has taken place in equity markets since the elections." Investors seem overly focused on a potentially brighter future, overlooking the current disappointing data. Wells Fargo warns that this disconnect may need resolution soon.

Historically, markets experience post-inauguration disillusionment when high expectations encounter policymaking realities, the bank explains.

With the S&P 500 nearing overbought territory, they advise investors to maintain discipline and ensure equity allocations align with recommended levels. "Now would be a good time for disciplined investors to check that their portfolio allocations to equities are not above recommended allocations, especially with long-term interest rates providing a strong alternative," the firm adds.

Despite concerns, technical indicators suggest the S&P 500 remains in an uptrend. Key levels to watch:
– Support at the 50-day moving average (5920)
– 200-day moving average (5515)
– Resistance at the recent high of 6090

Wells Fargo concludes with caution: the “post-election run leaves S&P vulnerable.”