Analysts at Wells Fargo said in a note to clients Friday that they see more downside for the despite a more bullish view over the longer term.

The bank notes that the S&P 500 is down 2.2% week-to-date due to the "triple-whammy" of higher rates, cautious 1Q24 comments around consumer demand, and continued geopolitical tensions.

"The rising rates, along with diminishing prospects for the Fed's easing cycle to begin this summer, [have] pressured longer-duration equities," write the Wells Fargo analysts.

They add: "Our research suggests a status quo environment – i.e., the absence of 'regime change' – favors the Momentum style. In this context, 'regime change' examples include a sudden change in the economic outlook, credit spreads, and/or Fed policy."

Wells Fargo also noted a recent Bloomberg article which said that over the last two weeks, the futures-implied number of 25 basis points Federal Reserve rate cuts for calendar 2024 has shrunk from 2.95 to 1.55, suggesting the status quo trade may still have room to run.

Just last week, Wells Fargo said the S&P 500 is likely to continue grinding higher. The banking giant raised its target for the index to 5535 from the prior 4625 and hiked its 2025 earnings estimate to $270.

Wells Fargo’s equity strategists argued that the ongoing bull market has led investors to prioritize growth and discounting metrics over traditional valuation measures.

Wells Fargo wrote last week, "We believe equities do have some upside from current levels, but we still anticipate a volatility spike in 1H24.”