The stock market rally has run its course as earnings highlight weakening consumer demand, strategist says

• US stocks are near highs for 2023, but the rally looks set to fade, the CIO of Blanke Schein Wealth Management said.
• Investors should avoid a "buy-the-dip mentality" amid shaky earnings and a murky outlook for interest rates.

Large-cap US stocks are hovering near their highs for 2023, but the market's upside momentum is losing steam as corporate earnings underscore a slump in consumer spending, according to the top strategist at a $500 million investment firm.

Now "is not a time for investors to return to a buy-the-dip mentality, as there is still too much uncertainty over the Fed's interest rate trajectory and how corporate earnings will fare in this elevated interest rate environment," Robert Schein, chief investment officer of Blanke Schein Wealth Management, said in a note published Thursday.

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

But Schein said his shop is cautious on equities as the number of stocks making new highs is lower than the number of stocks making new highs at the same time last year.

That "suggests that the stock market rally so far this year may have run its course," said Schein, whose firm his based in Palm Desert, California.

The S&P 500 has sagged in recent sessions as earnings reports roll out from Corporate America.

"The main takeaway from earnings season so far is that consumer demand is weakening," said Schein. He outpointed Tesla's fresh round of price cuts for its electric cars and Netflix's quarterly report this week showing it added subscribers but not as many as has been expected. Netflix added 1.8 million subscribers compared with a 2.3 million consensus estimate, according to Variety.

"Tesla and Netflix's results are signposts for what's to come, which is a cyclical decline in discretionary spending as consumers feel the squeeze," he said.

Tesla shares dropped 9% during Thursday's session after the company posted a decline in first-quarter margins. Netflix shares fell after its report earlier this week but moved higher Thursday.

Stocks found upside support in recent weeks from data showing inflationary pressures easing and regulators and the Federal Reserve stepping in to blunt the banking crisis that erupted after Silicon Valley Bank and Signature Bank failed last month, said Schein.

"Our message to investors now is to stay vigilant, as the past month has shown us just how fragile markets are," he said.

The energy, consumer staples, healthcare and materials sectors are areas where Schein is bullish, as those can fare well in different economic conditions. "We also see opportunities in precious metals to better diversify equity risk," he said.