Six months since the market bottom, investors see a tougher road into year-end

Published Wed, Sep 23 202011:11 AM EDT

(This story is for CNBC Pro subscribers only.) The S & P 500 hit its coronavirus bottom precisely six months ago. A historic rebound later, Wall Street has turned increasingly discouraged about the rest of 2020. Earlier this year at the height of the coronavirus crisis, stocks suffered a sudden and swift sell-off that sent the S & P 500 spiral into the fastest bear market in history. The broad equity benchmark eventually hit a trough at 2,191.86 on March 23. Since then, the market embarked on a ferocious comeback rally, led by the biggest technology companies that proved resiliant to the pandemic. The S & P 500 now stands 51% above the March bottom after a recent pullback that dragged the benchmark 7% down from its new record high from Sept. 2. For the year, the S & P 500 is up 2.7%. After the market's incredible round trip, Wall Street strategists seem pessimistic about where stocks are headed for the rest of the year, given how much uncertainty on the horizon surrounding the pandemic as well as the U.S. presidential election. Investors may have gotten a brutal reality check this month as September is living up to its reputation for a troublesome month for stocks. The S & P 500 has fallen more than 5% this month, hit by a double whammy of fears of a second wave in Covid-19 cases as well as the ongoing disagreement on further fiscal stimulus. "The tape has been highly driven by news flow in recent months on the outlook for the coronavirus, stimulus, the economy, and lockdown/reopening," Lori Calvasina, RBC's head of U.S. equity strategy, said in a note on Wednesday. "News flow has largely been negative." Calvasina added there's also a seasonal tendency to take profits on the year's best performers. Meanwhile, the technical picture has deteriorated for major stock averages. Last week, the S & P 500 and Nasdaq 100 both closed below their respective 50-day moving averages for the first time since late April. The moving average is a widely-watched indicator for momentum. The technical breakdown could signal more losses ahead, especially for 2020's market leaders and most loved names, according to Mike Wilson, Morgan Stanley's head of U.S. equity strategy. "While corrections in bull markets are to be expected, the 200-day moving average is still 10-20% lower for many of the leading and most crowded stocks," Wilson said in a note. "We believe the S & P 500 and Nasdaq 100 remain vulnerable to a test of their 200-day moving averages, which are 7% and 14% lower, respectively." Election has begun to 'spin out of control' With less than two months until November 3, traders are bracing for a long period of wild market swings as more people are expected to vote by mail because of the pandemic. This means it could take longer for the official results to be determined. "I am not at all surprised by the recent market volatility," said Kenny Polcari, managing partner at Kace Capital Advisors. "The lack of new fiscal stimulus, unclear direction over coronavirus policy and now an intense Supreme Court-related political battle is causing a new level of angst in the markets. Both political parties are now in a full flight with just a few weeks until election day. The U.S. election has begun to spin out of control." In the meantime, signs of escalating tensions between the U.S. and China are bubbling, which adds to investor anxiety. Chinese state media said the country has no reason to approve the "dirty and unfair" deal based on "bullying and extortion" that Oracle and Walmart said they struck with TikTok. "The path to 'more normal' is likely to be bumpy amid uncertainty over the coronavirus, the U.S. political environment, and US-China tensions. We therefore expect volatility to persist over the balance of the year," said Mark Haefele, UBS Global Wealth Management's chief investment officer. Vaccine hope? Still, there is a positive catalyst that could trigger a breakout for stocks — a viable coronavirus vaccine. Johnson & Johnson said Wednesday it has started its phase three trial testing its potential coronavirus vaccine, marking the fourth drug maker to enter late-stage testing. The other companies are Moderna , Pfizer and AstraZeneca . The news boosted sentiment on Wall Street for a bit on Wednesday, but the selling returned again late morning. A successful vaccine is seen necessary for a full economic recovery and could provide a boost for the so-called cyclical stocks, which are still lagging the broader market. "The primary trend is positive and credit conditions generally remain supportive," said Jeff deGraaf, founder of Renaissance Macro Research. "The market is discounting an improved economic environment going forward (virus or not….we're adapting). We stand in stark contrast to Europe where many of those trends have not improved and look more vulnerable. Cyclicals continue to lead defensive names, that's important and generally bullish." — With assistance from CNBC's John Schoen.

A visitor in front of the Wall Street Bull, a bronze sculpture in the Financial District of Manhattan New York, May 19, 2020.

Timothy A. Clary | AFP | Getty Images

(This story is for CNBC Pro subscribers only.)

The S&P 500 hit its coronavirus bottom precisely six months ago. A historic rebound later, Wall Street has turned increasingly discouraged about the rest of 2020.

Earlier this year at the height of the coronavirus crisis, stocks suffered a sudden and swift sell-off that sent the S&P 500 spiral into the fastest bear market in history. The broad equity benchmark eventually hit a trough at 2,191.86 on March 23. Since then, the market embarked on a ferocious comeback rally, led by the biggest technology companies that proved resiliant to the pandemic.

The S&P 500 now stands 51% above the March bottom after a recent pullback that dragged the benchmark 7% down from its new record high from Sept. 2. For the year, the S&P 500 is up 2.7%.

After the market's incredible round trip, Wall Street strategists seem pessimistic about where stocks are headed for the rest of the year, given how much uncertainty on the horizon surrounding the pandemic as well as the U.S. presidential election.