S&P 500 could break record in August followed by turbulence

Global markets rose on Tuesday, with the S&P 500 gaining 0.3 percent to come within 0.5 percent of its record high.

Tony Dwyer, an equity strategist at Canaccord Genuity, said the current market cycle probably has “a long way to go” due to “the combination of a solid economic backdrop, historically high business and consumer confidence, and better-than-expected earnings growth”.

However, while some analysts expect the S&P 500 to break its record high in August, they also say turbulence and a pullback is likely thereafter.

“The markets tend to have near-term peaks in August, and September has historically been a negative return month, and it's also the most volatile month of the year,” said Julian Emanuel, chief equity and derivatives strategist at BTIG.

“There could be a short-term psychological problem with the market once it hits the all-time high,” said Don Townswick, director of equities strategies at Conning. Nevertheless, he sees “significant expansion potential” as the market remains “fairly valued”.

Still, there are signs that investors are beginning to favour value stocks, typically a defensive play, over riskier growth stocks.

“The market is saying we're probably going to go into a normal second phase of the cycle,” said Gina Sanchez, CEO of Chantico Global. “We're likely going to slow and as that happens investors are going to get more defensive and they're going to look for better value for the money that they invest.”

However, Roger Jones, head of equities at London Capital, told CNBC that risks in stock markets are already elevated.

“We're starting to see a much more challenging picture from a very high level; we are starting to see very narrow markets; we've got very high expectations and we've got high valuations. That's a pretty horrible concoction to have effectively in terms of markets,” he said.