Sometimes, taking a step back is a good thing. That’s JPMorgan’s view of the stock market right now. “A correction would be healthy as it would remove some of the froth in the market, setting the stage for the next phase of the rally,” strategist Dubravko Lakos-Bujas wrote. “If a correction materializes, we would expect some large [assets under management] investors that have been waiting on the sidelines since April to buy-the-dip along with corporates and retail.” Stocks faced headwinds last week, as trade tensions between China and the U.S. flared up again. On top of that, concerns over bad loans briefly roiled regional bank names. Still, the major averages ended last week with solid gains — keeping market valuations elevated. The S & P 500 and Nasdaq Composite advanced 1.7% and 2.1%, respectively, while the Dow Jones Industrial Average climbed 1.6%. The benchmarks all less than 2% below the record highs set earlier this month. .SPX 1M mountain SPX 1-mo Lakos-Bujas is also positive on stocks longer-term. He sees the S & P 500 rising to 7,000 by early next year. That target implies upside of 5% from Friday’s close. “With all of this in mind, we remain cautious in the near-term with buybacks … also becoming more constrained as corporates are entering peak buyback blackout window,” he said. Oppenheimer technical strategist Ari Wald also noted that equities typically pause in October. He expects the trend to continue this time around. “We’re following the seasonal road map that indicates bull markets often pause in October ahead of stronger year-end returns — we recommend buying market weakness and not timing market weakness,” he said in a note to clients. Wald said investors should watch the 6,360 level on the S & P 500 for support. If the benchmark pulls back but manages to stay above that mark, it will set it up for strong gains heading into the end of the year.
