Stocks may decline further, signs indicate “excessive optimism”

Markets were mostly higher on Thursday.

The S&P 500 rose 1.3 percent and the STOXX Europe 600 rose 1.0 percent. However, the Nikkei 225 fell 0.1 percent.

Some analysts think that stocks may see further declines.

“I don’t think stocks are out of the woods yet,” Sven Henrich, founder and lead market strategist of NorthmanTrader, told CNBC on Tuesday.

Heinrich said that if “the central banks lose control and we actually do go into a global recession...it can head all the way down to 2,100 on the S&P”.

Scott Wren, Wells Fargo Investment Institute’s senior global equity strategist, told CNBC on Wednesday that the S&P 500 may decline another 5 percent and fall through the 200-day moving average.

However, that could represent a “buying opportunity”.

“Our year-end target is 3,030 on the S&P. So, clearly we’re constructive here,” he said.

And Wren is apparently not the only one who is optimistic over the longer term.

Ned Davis, founder of Ned Davis Research, said that a longer-term view of equity valuations and allocations indicates “excessive optimism”.

Davis wrote in a note that the S&P 500 is trading at about 16.3 times forward earnings, below the average valuation during the past five years but higher than they have been 80 percent of the time going back to 1928.