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In recent news, a collection of stocks on Wall Street may have gotten ahead of themselves, indicating potential overheating in the market. Federal Reserve Chair Jerome Powell’s signal of an imminent interest rate cut has caused the broader market to edge higher, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all seeing gains. However, some stocks are showing signs of being overbought, as indicated by their 14-day relative strength index (RSI) readings.
One such stock is aerospace and defense contractor Northrop Grumman, which has seen significant gains in 2024 and August alone. Despite positive second-quarter results and a strong revenue outlook, Northrop’s 14-day RSI of 81.4 suggests shares may be overvalued. Analysts have a consensus hold rating on the stock, with a potential downside of 4% over the next year. However, UBS analyst Gavin Parsons has named Northrop as the bank’s top pick among aerospace and defense stocks.
Another overbought stock to keep an eye on is snack maker Kellanova, which recently announced a planned acquisition by Mars for $36 billion. With shares surging over 44% in 2024, the stock now has an RSI of 88.1, the highest on the screen. This acquisition, the largest on Wall Street in 2024 so far, has propelled Kellanova into overbought territory.
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