The S&P 500 snaps a 6-day losing streak ahead of Big Tech's earnings surge

Stocks recovered from their recent decline on Monday.

But bearish Wall Street strategists still see major concerns that won't go away anytime soon for stock investors.

With expectations of a Fed rate cut fading, signs of inflation remaining steady and stocks continuing to trade at above-average valuations, many believe the market is in a similar position to where it was when it entered a 3-month decline in the late summer and fall of 2023.

“Price action may depend on earnings and could stabilize in the near term,” Marko Kolanovic, chief market strategist at JPMorgan, wrote in a note on Monday. “However, beyond that, we believe the sell-off continues. We remain concerned about continued complacency with equity valuations, inflation remaining very high, further repricing by the Fed, and earnings expectations as this implied acceleration may end.” “The year is promising, too.”

“The current market narrative and patterns increasingly resemble those of last summer, when bullish inflation surprises and hawkish Fed reviews led to a correction in risk assets, but the investor situation now appears more bullish.”

Last summer, markets became increasingly pessimistic about the possibility of the Federal Reserve cutting interest rates soon. This contributed to the rapid rise in bond yields, which ultimately impacted stocks.

Julien Emanuel, who leads equity, derivatives and quantitative strategy at Evercore ISI, recently told Yahoo Finance that things are going well as they did last summer as well.

Emanuel has been closely monitoring the two-year Treasury yield, which recently reached 5% for the first time since November 2023. Shares were later sold off in conjunction with the move.

“The reason that may be more troubling at this point is the implicit promise that markets traded on three stocks. [Fed rate] “The cuts have been rolled back. And if you look at it back to March, I think it's more of a coincidence that the market came back from its highs literally the moment the market started pricing below those promised three,” Emanuel said. Discounts.”

Mike Wilson, chief investment officer at Morgan Stanley, wrote in a research note on Sunday that with the 10-year Treasury yield (^TNX) now above the critical 4.35 to 4.40% level he had been monitoring, higher yields could impact… Stock valuations move forward.

“If yields remain at current levels over the next three months, multiples could face a roughly 5% decline over that period, all else being equal (which equates to 4700-4800 on the S&P 500),” Wilson wrote.

Wilson points out that with yields rising, any move higher from here “should be largely earned by increasing earnings rather than multiple expansion.”