The US stocks rally is driven by optimism that things are 'not as bad as feared,' but this may not last, Wells Fargo strategist warns

A big screen display of stock prices hangs behind traders working at the New York Stock Exchange NYSE on May 9, 2022.

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• The rally in US stocks may prove to be "fleeting than long-lasting," according to a Wells Fargo strategist. 
• That's because investor sentiment going into earnings season this year was so low that the only way is up. 
• "When you really lower the bar it's hard to trip over," Anna Han told Bloomberg. 

US stocks have kicked off 2023 on a high as a risk-off tone pervades markets, but the rally may not last for long, according to a Wells Fargo strategist. 

In an interview with Bloomberg on Thursday, equity strategist Anna Han said the optimism in the US stock market is "odd to see," since January is typically a month when investors stand down from high-risk assets. 

"That's not been the case this time. You're seeing people bid for risk, and you're seeing equities come out of the gates hot," Han said. It might be because investor sentiment toward the end of last year and coming into 2023's earning season was so poor, she added.

"Seeing that not as bad as feared sort of tone is helping equities rally," Han said. But such investor appetite for risk likely won't carry through the year, she added.

"I think this risk appetite is more likely to be fleeting than long-lasting," Han said. 

The S&P 500, Nasdaq Composite and Dow Jones have all set off the year in the green, rising 5.75%, 9.99% and 2.42%, respectively. The three indexes got a further boost Thursday as investors cheered strong GDP data and Tesla earnings. 

"I think right now, we're getting a bit of that relief, but when you really lower the bar it's hard to trip over," Han said. "And yet what we're seeing from earnings season is a tone, and also from economic data, that the consumer is somewhat healthy, they are slowly starting to pull back on their spending," she added. 

Meanwhile, corporates are cutting their earnings growth and feeling their margin pressures but it's not such an aggressive contraction, Han continued. 

In a recent report, the Bank of America noted that companies across the board are lowering their earnings outlooks for 2023 as fourth-quarter earnings season gets under way – and it's an early sign of trouble.

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