Piper Sandler believes S&P 500 vulnerable to a correction, dumps Nvidia from its model portfolio

Published Wed, Mar 27 20241:50 PM EDTUpdated Wed, Mar 27 20242:21 PM EDT

Piper Sandler is concerned the S & P 500 is due for a correction, and it has dumped Nvidia from its model portfolio. Stocks are set to close out a rosy first quarter, with each of the major averages having ridden a wave of artificial intelligence exuberance to register fresh record highs. The S & P 500 is on pace to close out its best quarter since 2019. The Dow Jones Industrial Average is tracking for its best quarterly performance since 2021. But that extraordinary run of gains is not likely to last for much longer, according to Craig Johnson, chief market technician at Piper Sandler. In fact, the technician said he expects the S & P 500 is due for a 5% to 10% correction in the coming weeks, citing extended valuations, lackluster breadth and technical data showing slowing momentum. "As investors show complacency within the current uptrend and exhibit a Fear-Of-Missing-Out (FOMO), we believe now is the time to be more vigilant and 'Cool The Engines,'" Johnson wrote Wednesday. "We believe the SPX is vulnerable to a 5%-10% pullback/correction in the coming weeks," Johnson added. .SPX 1D mountain S & P 500 Significantly, Johnson removed Nvidia from his model portfolio, the AI beneficiary that has soared more than 80% this year and has been one of the primary drivers of gains in the S & P 500. Instead, the technician added Micron Technology and Taiwan Semiconductor Manufacturing to the portfolio, along with other names. While many investors remain bullish on the long-term prospects for Nvidia, more Wall Street firms have been casting about for derivative AI plays in recent weeks amid concerns the chipmaker is getting too expensive. As a whole, the Wall Street firm reduced the equity exposure in its model portfolio to 90% from 98%. It has now allocated 10% to cash. For the moment, Piper Sandler has kept its year-end S & P 500 target of 5,050, even as other Wall Street firms have hiked their projections following the recent rally. The target implies roughly 3% downside from Tuesday's closing level of 5,203.58. The technician anticipates a spike in volatility in the coming months around the U.S. presidential election.