Displaying items by tag: S&P 500
The last few weeks have seen good performance out of US indexes. Much of the credit has gone to the idea that investors were awaiting a new stimulus bill at any moment. However, why the market rose is actually less important than how it did so. One of the very worrying things about the market’s recovery in the early summer was how seemingly all of it was led by FAAMG, with extremely limited breadth. That is exactly what made the last several weeks so special—it finally broke that trend. Over the last three months the Invesco S&P 500 Equal Weight ETF (ESP) has outperformed the SPDR S&P 500 ETF (SPY) 13% to 10%. The reason why is that a huge cut of stocks are rising, not just the largest stocks. The last ten days have seen the biggest jump, with advancing stocks outnumbering decliners 2 to 1. That is called a “breadth thrust” and it is very rare and very bullish. It has happened just 29 times since 1990, and 96% of the time the market is higher 12 months later.
FINSUM: This does not mean the market is going to rocketship right away, but in general this has been a very solid indicator of rising markets.
The market is falling again the day after the Labor Day holiday, and many tech stocks are nearing or in correction territory. It is a rough start to the week, and Goldman Sachs is not offering much hope. The firm published a research piece this weekend which was bullish on stocks overall, but said that another 10% correction may arrive soon. Goldman says that if investors start to doubt the trajectory of the recovery in the face of the super quick snapback in economic output that the market has priced, then stock prices will likely fall.
FINSUM: On the whole Goldman was pretty positive, but they also clearly allowed room for a short-term “shake out” in share prices. This correction we have on our hands might also lead to a change of market leadership, which would be an interesting shift.
You know the saying “a rising tide lifts all boats”? It couldn’t be further from the truth as it concerns the current stock market. The S&P 500 is just about flat, yet if you take a close look, 337 of its component stocks are down. The index is only being held up by a 1% gain from Apple and minor gains from the other 4 stocks that comprise 20% of its entire value. The lack of breadth has been a consistent feature of the recovery over the last several months.
FINSUM: Investors are not expressing any degree of bullishness about the economy, which would be reflected in breadth. Frankly, all the recent gains seem to be simple momentum bets on a small handful of stocks, making the whole recovery feel hollow.
Wondering where the market is headed? (so is everyone!) Well, Goldman Sachs put out a pretty unequivocal opinion about it today. Despite the market being at all-time highs when the country is in a recession and unemployment massive, the bank says that the S&P 500 will rise another 7% to close out the year. The only damper in the bank’s forecast is the election. Goldman says it is assuming a Democratic victory, and that could cause higher taxes that could dent the market a bit. GS also says Treasury yields will fall to 1.1% by the end of the year.
FINSUM: So we have two big competing feelings here. On the one hand, with the Fed so strongly in support of markets (and another fiscal stimulus likely), it seems like it could be smooth sailing. On the other hand, 51% of the entire market’s gain since the bottom in March has come from five stocks. On the whole, we think gains are more likely than losses.
A lot of investors are worried about what will happen to stocks if Biden wins, and even more worryingly, if the Democrats sweep the election. The general fear is that without at least a Republican Senate, the Democrats could give in to their more leftist impulses and create policies which would be detrimental to the financial-economic paradigm. However, UBS argues that even if Biden hikes corporate taxes up to his planned 28%, he will offset that with big economic spending to accelerate the recovery, which should more than make up for the loss of profits because of taxes.
FINSUM: This makes pretty good sense. Even if taxes are raised, it is not like the Democrats are planning to balance the budget. Large amounts of deficit spending will likely help keep stocks afloat.