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Fully priced, overbought market pauses

After the stock market’s heady run that powered it within 1% of a record high, a chorus of Wall Street pros are warning that the market may be gassed and ready for a pause. Or at least facing limited upside in the short term.

Wednesday, that storyline played out as the benchmark Standard & Poor’s 500, which entered the session within 21 points of a record high high, retreated 7.5 points or 0.35%, to close at 2,012.31. The index remains 1.3% shy of its May 21 closing peak of 2,130.82.

The cooling trend did not come without warning, as a slew of stock market missives zapped out by Wall Street pros early Wednesday said a stalling market was a possibility.

David Rosenberg, chief economist and strategist at Gluskin Sheff, told clients, “We are looking at the market as fully priced with limited upside over the near term.”

Bespoke Investment Group noted that 65% of the stocks in the S&P 500 were overbought, up from less than 2.5% five weeks ago. A sharp rise of that magnitude in the percentage of stocks overbought hasn’t occurred since 2011. And if the market behaves like it did then, “upside from here will be limited,” Bespoke told clients.

Adding to the market pause narrative was Gina Martin Adams, an equity strategist at Wells Fargo Securities. “The index may be due for a pause in November,” she wrote after pointing out that, “momentum” stocks are now “slightly overbought.”