November 23, 2020 Update: The S&P 500 (INDEXSP: .INX) has maintained its push to new heights as a bullish triangle pattern emerged. Credit Suisse analysts are concerned about the broader overextension, although their bias remains to the upside. They see the next resistance at 3,700 and then 3,765 ahead of an eventual move toward 3,900.
The Credit Suisse team is concerned about the sustainability of the S&P 500 rally due to the poor momentum and the fact that the market is above what they see as the upper end of its typical extreme, which is 15% above its 200-day average. They see support at 3,519 and 3,509 to support the immediate upside bias, but anything below that would warn of further range-trading and a potential fall to 3,485 and then to the 63-day average at 3,425.
Credit Suisse analysts also note that 85% of S&P 500 (INDEXSP: .INX) stocks are above their 200-day average, which is high and typically means the market is overbought. Although that doesn’t mean the market can’t extend its gains, they warn that it suggests the strength is unlikely to last long.
It took decades for Warren Buffett to build Berkshire Hathaway into the conglomerate it is today. Along the way, the Oracle of Omaha and his business partners have acquired a range of different companies and extracted cash from failing businesses to reinvest back into growth stocks. Q2 2021 hedge fund letters, conferences and more The Read More
S&P 500 (INDEXSP: .INX) falls from overbought to neutral
October 21, 2020 Update: The S&P 500 (INDEXSP: .INX) is taking a break after the new highs recorded earlier this month. Analyst Tony Dwyer of Canaccord Genuity said in a note that the last few sessions have been marked by “violent intraday reversals” that revolve around the fiscal stimulus negotiations, earnings season kicking into high gear, elections and a possible second wave of COVID-19.
The recent consolidation helped his tactical indicators fall to neutral from overbought. Dwyer noted that the percentage of S&P 500 (INDEXSP: .INX) companies above their 10- and 50-day moving averages fell back to the bottom of neutral territory at 33% and 58%, respectively. He would add more exposure if these percentages fall below 20% and 40%, respectively.
Stifel sees S&P 500 (INDEXSP: .INX) going down before it goes up
October 8, 2020 Update: The S&P 500 has been trading at around 3,400, and Barry Bannister of Stifel sees near-term weakness in the index. In an interview with Bloomberg Television, he predicted a range of plus or minus 300 around the 3,400 level. Depending on the outcome of the election and fiscal spending, he believes the S&P 500 (INDEXSP: .INX) could go as high as 3,700 next year. Before then though, he expects it to go down.
He added that the market is fraught with risk. He believes there won’t be any fiscal stimulus because lawmakers are playing hardball, and House Speaker Nancy Pelosi has a political wish list. Further, the White House is taking risk by assuming there are three more weeks of economic momentum to get through the election and that they can work on it after the election.
Despite his expectation that there won’t be any new fiscal stimulus any time soon, the markets appear to be betting on it. The S&P climbed even though jobless claims remained high at 840,000, which was even higher than the consensus of 825,000.
S&P 500 (INDEXSP: .INX) correction could continue
September 24, 2020 Update: Credit Suisse analysts warn that the recent correction in the S&P 500 (INDEXSP: .INX) will be extended now that the supports at 3280 and 3259 have been broken. They see the next support levels at 3204 or 3200 and then at the 200-day moving average at 3105.
At that point, they would look for an attempt to find “a fresh floor and for a fresh base building process to begin for a resumption of the core uptrend,” they said in a recent report.
S&P 500 in the red for a third straight day
September 18, 2020 Update: The S&P 500 (INDEXSP: .INX) declined for a third consecutive day amid fears about the economic recovery in the U.S. and a new global surge in coronavirus infections. Today is also a “quadruple witching” day, which doesn’t help matters any. There is one such day every quarter when volatility is increased due to the expiration of futures and options on indexes and equities.
The S&P has been trading lower since Wednesday when the Federal Reserve signaled it would hold interest rates near zero for years as the economy continues to reel from the pandemic. Stocks were also pressured as the prospects of further stimulus from Congress grow even dimmer.
S&P 500 (INDEXSP: .INX) continues to hover close to record
August 17, 2020 Update: The S&P 500 (INDEXSP: .INX) is hovering close to a record high today. Investors remain unconcerned about the lack of a stimulus deal among U.S. lawmakers, not to mention renewed tensions between the U.S. and China and the COVID-19 pandemic.
If the S&P hits a record high this week, it would be the first time that happened since February. What’s even more remarkable than that is the fact that the index would even hit a record at all with the pandemic, which is causing the economy to struggle.
CNN notes that if the S&P 500 (INDEXSP: .INX) does hit a new record high soon, it would mean that it took only about five months for it to climb from its recent low during the March selloff to a new record. The index has been hovering close to a new record high for some time, but it has repeatedly failed to break through.
A new bull market for the INDEXSP: .INX?
Some might say that a new record would mark the end of the bear market caused by the pandemic, making it the shortest ever at only 1.1 months. However, other definitions suggest another month would have to go by before there would be a confirmation that a new bull market is underway.
The general definition of a bull market is a 20% rally off the previous low without undercutting it within six months. The S&P 500 is on track for that in September unless things change.
Bubble territory, earnings and how to buy
The S&P 500 (INDEXSP: .INX) is now back in bull territory. The index is currently at 3,270.92 as of late trading on July 22nd 2020. The return is only 1.37% YTD due to a big drop earlier in the year. Of late, markets including the S&P500 have been rallying with the index up an impressive +16.99% in the past three months including a 5% return in the monthly of July.
Prior to mid February the index continued to hit record highs in 2020, including new highs on Feb. 11. Both the S&P and the Nasdaq touched new records as Wall Street expressed optimism in the stock market due to a slowdown in new cases of the coronavirus in China. The Dow Jones Industrial Average also soared to a new record intraday high. However, all that ended as coronavirus started spreading primarily in Italy and now the US. INX and other major indices are down on fears that most of the economy is likely to shut down.
What is the S&P 500 (INDEXSP: .INX)?
The S&P 500 is a widely used measuring stick for U.S. stocks because it tracks the stocks of 500 of the biggest companies in the nation. S&P stands for Standard and Poor, the names of the two companies that created the index originally. Henry Poor was an analyst who put together a book every year listing public railroad companies. Poor’s book was merged with the publication of the Standard Statistics Bureau in 1941.
A committee selects the companies that will be included in the S&P, but all companies must fit certain criteria before they will even be considered. The eight criteria are market capitalization, sector, liquidity, public float, domicile, financial liability, stock exchange, and length of time they have been public.
How to get included in the INX index
All companies included in the index must have a market capitalization of at least $5.3 billion. A minimum of 250,000 shares must change hands in each of the six months before the data of evaluation for inclusion in the index. The companies are also selected across all sectors to represent the economy of the U.S.
The companies must be listed on either the New York Stock Exchange or the Nasdaq, and they must be headquartered in the U.S. They must have been public for at least six months and have posted at least four consecutive quarters of positive as-reported earnings. For this reason, even though Tesla has achieved a massive market cap of $138.84 billion, it isn’t ready to be included in the S&P because it hasn’t yet posted four consecutive quarters of positive as-reported earnings.
How to buy the S&P
The easiest way to buy the S&P 500 is to invest in a passive fund that tracks the index. Some common exchange-traded funds that track the index include the Vanguard S&P 500 ETF, the SPDR S&P 500 ETF, and the iShares Core S&P 500 ETF.
It’s also possible to purchase individual stocks that are found in the S&P 500 (INDEXSP: .INX). In some ways, that may be the wiser move, although it is more complicated for individual investors.
CNN argues that the S&P 500 has basically become the S&P 5. The index’s entire market value is $26.7 trillion, and the top five stocks make up $4.85 trillion of it. The top five stocks are all tech names: Apple, Microsoft, Amazon, Alphabet and Facebook.
The last time the weighting of the index was so heavily skewed toward one sector was in 2000 right before the bursting of the dotcom bubble. Currently, Apple and Microsoft’s weightings in the index are higher than those of some industries.
Another way to buy the S&P is to buy futures contracts in the derivatives market via the Chicago Mercantile Exchange. The futures contracts track the index and trade on the exchange or CME’s Globex platform.
Is the S&P 500 (INDEXSP: .INX) overvalued or in a bubble yet?
So does this mean the S&P is overvalued or in a bubble? It depends on who you ask, but JPMorgan analysts said the index isn’t in a bubble until it reaches 3,700, Bloomberg reported in January 2020. At less than 3,400, the index is still well below that level. The firm said the S&P would have to hit 3,700 in the second half of this year to be in a bubble.
JPMorgan strategists explained that bubbles often start with two or three years of positive rolling 12-month performance. An accelerated rally follows those two or three years. This is what happened to the Dow Jones in the late 1920s, the Nasdaq 100 in the late 1990s and gold in the late 1970s. All of these situations are widely referred to as bubbles.
If the S&P 500 (INDEXSP: .INX) reaches or exceeds 3,700 in the second half of this year, it would line up with the 12-month growth rate pattern JPMorgan identified in previous bubbles. They did say the index’s performance between 2017 and 2019 does roughly line up with the performance leading into previous market bubbles. Thus, all that’s needed is one year of an accelerated rally.
Where will the S&P go this year?
Looking at the S&P more realistically, analysts are looking for the index to reach levels of 3,400 to 3,500. Of the strategists tracked by Bloomberg, 3,500 was the highest target offered for the end of this year.
In a note on Feb. 10, 2020, Canaccord Genuity analysts Tony Dwyer and Michael Welch said they are looking for a target of 3,440 at the end of this year. They downgraded their market view to Neutral recently because the index is relatively close to their target already.
INX valuation levels
They based their target on their projected earnings for the index year. They’re looking for $172 in earnings per share for the S&P in 2020. They are also assuming the operating earnings per share P/E multiple for the trailing 12 months remains around 20.
To come to a higher target for the S&P, they would have to see higher earnings per share numbers for the index this year. They add that it’s unlikely that earnings will be higher than that until more clarity is seen on the impact of the coronavirus on the global economy. On the other hand, they also say investors shouldn’t be too cautious.
“We would be careful to not get overly cautious because the monetary and fiscal backdrop should remain positive, and the U.S. economy driven by low inflation, full employment, high confidence, and a demographic tailwind to support further long-term upside,” they explained.
With their earnings estimate at $172 for 2020, Canaccord Genuity is below consensus. Consensus stands closer to $176 per share.
S&P outlook: index could rise in the double digits in 2020
On Feb. 4, 2020, Fundstrat co-founder Tom Lee told Yahoo Finance that the S&P 500 index (INDEXSP: .INX) could deliver another year of double-digit returns this year. He expects the industrial cycle to return to growth, based on a sharp increase in the latest reading on the manufacturing purchasing mangers’ index.
The ISM manufacturing PMI climbed to 50.9 last month, clocking the highest level in six months. The S&P 500 index also rebounded on Feb. 4 and 5 as fears about the coronavirus subsided. Reports of a possible treatment for it boosted the stock market on Wednesday.
The Dow Jones Industrial Average also climbed on Feb. 5, rising an impressive 1.42% by the afternoon amid signs that the spread of the coronavirus was slowing. Analysts say the Dow Jones climbed more than 200 points as Wall Street expressed optimism over the possibility of a vaccine for the coronavirus.
The stock market in general moved higher on Feb. 5 as the Nasdaq Composite (INDEXNASDAQ: IXIC) was also up, although less than the S&P 500 index (INDEXSP: .INX) and the Dow. The Nasdaq managed a new record during the regular trading day, following the previous record set the day before.