The S&P 500 Index has likely logged most of the gains it will see this year as investors are growing increasingly nervous about the stock market's rich valuations, according to the latest Bloomberg Markets Live Pulse survey.
The 2024 rally, which has driven the U.S. equity benchmark to 31 record closing highs, has left the asset class more overpriced than U.S. credit or gold, a majority of the 586 respondents said.
After soaring roughly 50% since October 2022, driven by technology shares, the bull market has delivered a greater advance than the median of its predecessors going back to 1957.
Investors aren't looking to hit the sell button just yet, but signs of skittishness are evident as about half of survey takers say stocks will see the beginning of a correction of at least 10% this year, with 35% saying that will happen in 2025.
That overarching sense of caution is also apparent in the options market, where traders have been building hedges against potential losses in tech stocks.
With the economy and earnings still growing, and ample liquidity sloshing around in the financial system, most poll participants see scope for additional gains this year, but only a modest amount.
The survey's median projection is for the S&P 500 to finish 2024 at 5,606, almost 3% above Friday's close. That's a cheerier view than Wall Street strategists' median target, which is for the index to be little changed from current levels at year-end.
About three quarters of participants say they'll maintain or boost their exposure to the S&P 500 over the next month. It makes sense to ride the bullish wave for the time being, Ned Davis Research's Ed Clissold and Thanh Nguyen wrote in a June 20 note.
They have doubts, however, as the year goes on, given all the questions investors face in the second half, around all-important areas such Federal Reserve policy and the U.S. elections.
"Maintain an overweight position in equities for now," they wrote. "But prepare for more defensive positioning, potentially in the third quarter."
As a measure of equities' lofty valuation, Michael O'Rourke at JonesTrading points to the S&P 500's market capitalization relative to the size of the economy. Since around 1990, that ratio has only been higher when stocks were surging in 2021.
"We are in a bubble and there is an outsized risk that the economy finally slows down in the second half of the year and multiples should contract," said O'Rourke, the firm's chief market strategist. "These are very dangerous levels for long-term investors to be buying stocks."
Artificial intelligence, a key driver of the market's almost 15% advance this year, is seen as the most likely trigger for a selloff, with 31% of survey respondents on alert for a negative surprise on that front.
