Stock Market Outlook: Inflation rebound could result in sharp sell-off

The FOMO-fueled rally in stocks might not last much longer, and the market is facing the risk of resurgent inflation, Wells Fargo said in a note.

"Our analysis suggests that now is not the time to chase the technology sectors that have driven the bulk of this rally. For a long list of reasons, we remain cautious and believe that in the nearer term stocks will struggle to move much higher," senior global market strategist Scott Wren said in a note on Wednesday.

Core inflation accelerated 0.2% in June, and though payrolls rose by a less-than-expected 209,000 jobs last month, the"If inflation's descent flattens out and reverses as interest rates rise higher, we believe the sectors that have driven this rally should be vulnerable to sharp pullbacks," Wren warned.

Wells Fargo predicted the S&P 500 would end the year between 4,600-4,800. That's slightly higher than current levels, with the benchmark index trading around 4,500 on Thursday – but the risk-reward tradeoff to entering the market at this point is still unattractive, Wren said. Other voices on Wall Street have warned of trouble in the market to come, despite investors growing more enthusiastic on stocks in recent months. In addition to stubborn inflation, investors could also be slammed with a

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