The stock market is facing a “serious breadth problem,” according to analysts at Yardeni Research.
Analysts explained in a note that the problem initially seemed related to the Magnificent-7's superior performance. However, the focus has now narrowed to just one standout: Nvidia (NASDAQ:). This change in market dynamics has raised concerns about the sustainability of the broader market rally.
Investment strategists are adjusting their year-end targets upward, but Yardeni Research remains consistent with its year-end target of 5,400.
While neutral on the near-term market outlook, the company maintains a bullish outlook for the long-term trend. Despite this, analysts highlight potential obstacles, including growing political uncertainty both globally and domestically.
Analysts believe the escalation of the conflict in the Middle East poses a significant risk, which could expand into a broader regional conflict. Internally, they say the partisan divide in the United States is expected to deepen as the presidential election approaches, increasing market volatility.
Analysts note that the two remaining bull/bear ratios remain relatively bullish, which, from a contrarian perspective, could be a bearish signal.
The upcoming release of the PCED inflation rate for May will be a key indicator to watch. Analysts expect the data to show continued moderation in inflation, which should be bullish for stocks as long as prices do not rise due to rising geopolitical risks.
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