The stock market is over as gains highlight weakening consumer demand, a strategist says

• U.S. stocks are near 2023 highs, but the rally looks set to fade, said Blanke Schein Wealth Management’s CIO.

• Investors should avoid a “buy on the dip” approach amid uncertain returns and a murky interest rate outlook.

• The S&P 500 is up 19% from the bear market low.

U.S. large-cap stocks are hovering near 2023 highs, but the market’s momentum is losing momentum as corporate earnings highlight a decline in consumer spending, according to the chief strategist at the $500 million investment firm.

Now is “not the time for investors to return to a buy-dip mentality as there remains too much uncertainty about the trajectory of Fed interest rates and how corporate profits will evolve in a higher interest rate environment,” Robert Schein, director, said in a note published in Thursday, chief investment officer of Blanke Schein Wealth Management.

The S&P 500 Index has gained 8% this year and is up 19% from the bear market low of 3,491.58 recorded in October.

However, Schein said his shop is cautious on the stock because the number of stocks hitting new highs is smaller than the number of stocks hitting new highs at this time last year.

That “suggests that the stock market’s rally this year may have come to an end,” said Schein, whose company is based in Palm Desert, California.

The S&P 500 Index has been losing ground in recent sessions as earnings reports trickle in from Corporate America.

“The main takeaway from earnings season so far is weakening consumer demand,” Schein said. He pointed to Tesla’s new round of electric car price cuts and Netflix’s quarterly report this week showing it added subscribers, but not as many as expected. According to Variety, Netflix gained 1.8 million subscribers compared to the consensus 2.3 million.

“Tesla and Netflix’s results are signposts of what’s to come, which is a cyclical decline in discretionary spending as consumers feel the pressure,” he said.

Tesla shares fell 9% during Thursday’s session after the company reported declining margins in the first quarter. Netflix shares fell after the report earlier in the week, but rose on Thursday.

Stocks have found support higher in recent weeks with data showing inflation pressures are easing and regulators and the Federal Reserve are stepping in to ease the banking crisis that erupted after the collapse of Silicon Valley Bank and Signature Bank last month, Schein said.

“Our message to investors now is to remain vigilant because the past month has shown us how fragile markets are,” he said.

The energy, staples, healthcare and materials sectors are areas where Schein is bullish because they can perform well in a variety of economic conditions. “We also see opportunities to better diversify share price risk in precious metals,” he said.

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