Investors Look for Reasons the Market Could ‘Grind Higher’

Some, including analysts at Cantor, Morgan Stanley, BNP Paribas and Barclays, continue to forecast a drop of around 10 percent or more before the end of the year.

The searing rally in the S&P 500 since it plumbed its low in October means companies are broadly already valued at historically high levels. While unemployment remains low, there are signs of softening in the labor market. Pepsi reported strong earnings and raised prices, but its sales volume took a hit as a result, as some consumers balked at the higher price tags.

Some analysts also pointed to the end of the student loan moratorium, meaning loan repayments will restart in the fall, as another headwind for consumers.

Aside from a group of technology companies that have driven the market higher, partly because of enthusiasm over the profit potential of artificial intelligence, companies could face more resistance to higher prices, while costs — such as from higher wages — remain, said Venu Krishna, head of U.S. equity strategy at Barclays.

“We still see ongoing earnings pressure,” he said.

Even some of the more optimistic strategists acknowledge that while the worst for company earnings may soon be in the rearview mirror, it will be more difficult for stock prices to keep rising because much of the recent optimism is already embedded in the market.

Still, the outlook heading into the latest round of financial results remains far from the dour predictions at the start of the year, with Mr. Chadha expecting stock prices to still “grind higher.”

“There are a long list of concerns that investors have, and whether or not we go into a recession is an open question,” he said. “But with the potential recession long telegraphed and expected to be mild, we think the market sell-off will be modest and short-lived.”