Wells Fargo says history suggests at least a 5% drop in S&P 500

History suggests there will be at least a 5% slide in the S&P 500, according to Wells Fargo in a note Wednesday.

While not providing further details on the claim, the bank's equity analysts said in their brief note that an equity sell-off was sighted yesterday, and the expected 1H24 volatility lift started.

"History suggests at least a 5% SPX slide. Focus on positioning: overweight Comms/Health Care/Utes; underweight Energy/Industrials," the analysts wrote.

They added that they prefer software over hardware and that GDP strength supports a Fed Funds re-pricing.

Wells Fargo notes that the communications sector and growth are white-hot, with communications remaining the bank's top offensive idea in 2024 "as valuation, technicals, and fundamentals suggest there is more scope for outperformance."

Meanwhile, energy and value are flat-to-down this year. "Without an economic recovery and a rapid acceleration of EPS growth, we expect firms with significant operating leverage (such as cyclicals) to flounder," the analysts said.