Wells Fargo pointed to a narrowing in investment-gradeCredit spreads reflect the difference in yield between corporate bonds and similar-maturity government debt, with a tightening gap seen by economists as a sign of market health.
"Bear markets often end when we see sharp tightenings and healthy issuance similar to what we have experienced over the last several months," the analysts said."When bear markets go 'next level' spreads widen, not tighten."Harvey's team said that S&P 500 share prices still look high relative to companies' earnings – and that more bullish market voices are discounting the potential risk of an economic downturn.
"It is not April 2020 and we do not envision a sustained rally in risk," Wells Fargo said, referencingthat took place between the start of the US's COVID-19 lockdowns and the end of 2021. "A continued re-pricing of risk is neither supported by valuations nor the economy. Expect a near-term reversal," the strategists added.
Harvey maintained an end-of-year target for the S&P 500 of 4,200 points – which would represent a rise of just 2.7% from the 4,090 level the benchmark traded at as of Monday's closing bell.
This 'traffic' analogy is not working for me...
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