The US stock market has been up for four straight months, is a pull-back coming soon?

Despite the most aggressive Federal Reserve rate hike campaign in four decades, regional banking turmoil, and constant concerns about a recession that never fully materialized, the benchmark index demonstrated remarkable resilience in its rise; Nasdaq and S&P 500 are up for 10.91% and 6.55% during the second quarter 2023.

(According to Deutsche bank, S&P 500 will experience 3%-5% pull back every 47 days.)

The signals used by economists to predict a recession are giving mixed messages. While the yield curve remains deeply inverted, and manufacturing surveys have indicated a looming recession for several months, there haven't been widespread layoffs outside the tech industry. Certain areas of consumer spending, such as travel, are experiencing a surge in growth, indicating strength in the economy despite contradictory signs.

“The US and global expansions stand on solid ground, and fears of an imminent recession look overblown. This is the message from the latest releases showing a surprising increase in the global manufacturing PMI alongside strong gains in US goods spending and employment. But these data also suggest that the seeds for an end to expansion are being sown," JPMorgan global market strategist Marko Kolanovic said in a note to clients on Monday.

Wharton professor Jeremy Siegel also warned during an interview with CNBC that the US stock rally of 2023 may end soon because it's hard to see a lot of upside catalysts for the market in the second half of this year. He added that the US is in for a“mild recession”this year, and cyclical stocks have already priced this in. Some banking giants share the same thoughts; Joseph Little, the global chief strategist at HSBC Asset Management, said the balance of risks“points to high recession risk now,”and corporate defaults have started to creep up too.

On the profit side, consensus forecasts for S&P 500 earnings grew to $220 per share, almost 19% higher than Morgan Stanley's forecast. Morgan Stanley's Global Investment Committee thinks such projections are overly optimistic and put too much faith in corporate resilience, considering that margins and demand levels remain so far above historical trends. They believe the performance will revert to long-run average levels so that it could bring a meaningful correction in corporate results and asset prices.

The market sentiment maintains greed for a while, as shown on the Fear & Greed Index, and betting against the market sentiment is difficult and costly, but paying more attention to the risky side will not hurt. As the famous quote says, “Hope for the best and be prepared for the worst.”