Wall Street's 'Historic Optimism' Paradox... Warning of Stock Market Plunge This Summer

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With investor sentiment on Wall Street soaring to an all-time high, warnings have emerged that the U.S. stock market could face a correction this summer, driven by a combination of weakness in tech stocks, falling copper prices, and high earnings expectations. Some experts diagnose that the current market environment shows similarities to 1999-2000.

According to cryptocurrency specialized media Watcher.Guru on July 4th (local time), Jason Hunter, a technical analyst at U.S. investment bank JPMorgan, analyzed that Wall Street's record optimism and market risk factors are simultaneously increasing ahead of the Q2 earnings season. Currently, about 60% of Standard & Poor's (S&P) 500 constituent stocks are receiving a 'Buy' rating, which is an all-time high. Hunter assessed that this excessive optimism increases the possibility of a stock market correction.

The media particularly pointed to the weakness of the 'Magnificent Seven' large-cap tech stocks as a major risk factor. The Roundhill Magnificent Seven ETF fell by 9% in June alone, and major stocks such as Amazon, Meta, Alphabet, and Apple also underwent significant corrections. Hunter explained that the current price trends of large-cap tech stocks show similar patterns to the market in 1999-2000, and if these stocks fail to rebound this summer, market shocks due to investor sentiment and position adjustments could occur as autumn approaches.

Another warning sign is the price of copper. Known as 'Doctor Copper,' copper is considered a leading indicator of the global economy and is currently on a three-week losing streak. Hunter analyzed that the peak pattern forming on industrial metal charts is also a risk factor to watch, and that the trends of copper and other non-ferrous metals have served as leading indicators for the global manufacturing economy. The explanation is that internal market risk signals are increasing with the simultaneous appearance of weak tech stocks and falling copper prices.

However, not all market outlooks are pessimistic. Charlie Bilello, Chief Market Strategist at Creative Planning, assessed that the room for positive earnings surprises has diminished as market expectations have become excessively high. In contrast, Ben Snider of Goldman Sachs predicted that a robust macroeconomic environment and increased investment in artificial intelligence (AI) would continue to support corporate earnings. The media reported that if the Q2 earnings to be announced in the coming weeks fall short of market expectations, the stock market correction that some experts worry about could quickly materialize, but for now, the possibility of a summer plunge is just one of the scenarios being raised in the market.

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