S&P Boom: The Pattern That Predicted It

The S&P 500 has climbed to record highs this year.

Many analysts say that this is not the end of the boom and that shrewd advice would be to hold or buy more.

Investors are bullish on near-term prospects, and there could be more record breaking highs.

Read on for more.  

Breadth of Market

When looking at market-wide moves in price, it is important to look at the bigger picture and ensure that it is not one strong sector that is propping up the rest of the pack.

The important aspect of this boom is that it is not an industry or set of companies that is helping the averages, be it Dow Jones or S&P, grow to the levels they are seeing.

There is a breadth of the market not seen before, whereby many companies are contributing to this growth.

Oppenheimer’s chief of technical analysis points out that 70 percent of stocks in the S&P 500 are trading above their average 200-day historical close.

This shows that it is a market-wide renaissance, not an isolated, industry-specific boom.

Patterns through time

He compared it to the shows of strength that the market saw in the years 1995, 2003 and 2009.

There are even other historical parallels showing that his boom could continue.

Almost every time that the S&P has reached a new record-breaking high after being below its previous high for 12 months, the following 12 months have been up 14%.

12 out 13 times since the 1950s when this situation has arisen this has been the case.

When the market bounces back, it bounces back spectacularly.

He predicts a year finish of 2,250, with the recent breakout of 2,135 being an attractive entry point for investors to profit from the rally.

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Other investors showing positivity

Wells Fargo is in agreement.

The company is bullish about the global economy.

They recently went on a spending binge in London’s financial sector, even in the face of the Brexit security that is causing everyone else to panic and shut up shop!

Paul Christopher is a global markets analysts and head honcho at the company.

He estimates that the S&P will finish at 2,240, ten below the prediction of Wald, the contact from Oppenheimer.

Wells Fargo is a household name in finance, and their stance has often been indicative of wider trends in the economy.

He believes there will be pullbacks, and they could coincide with the US presidential election or any further referendums announced in Europe after Brexit.

The most likely would be the Netherlands and Italy, but neither is more liable to happen than not.

Strong US economic data and hopeful news for Japan had brightened fears of the world economy after a slump the day after Brexit when trillions were lost.

US payroll data (see below) heartened investors, and the re-election of Shinzo Abe meant stability and continued economic stimulus measures to kick start the Japanese economy.

Positive notes:

–    The Japanese election

–    Strong economic data from the US

–    A moderate, non-Brexit-supporting politician elected as PM in the UK

What’s so critical about Japan?

Tony Crescenzi is a market strategist for Pimco.

He explains that the significance of the re-election will ease fears that Japan would fail to keep treading water above dangerous stagnancy levels.

Although the stimulus measures haven’t fixed the situation, they are a necessary band-aid to an integral world economy (Japan is the world’s third-biggest economy by nominal GDP).

This has helped to maintain the S&P surge this year.

The yen continues to gain in value in spite of stimulus measures intended to devalue the currency.

While the continued measures will not work wonders, it is their continuation that is of comfort to investors who can see growth without the inflation.

With bonds at record lows, many investors have fled to haven assets like gold and stocks.

It is apparent that interest rates will be low for a while, although the Fed is sizing up an option to raise them as it did in fall last years.

Earnings Season, Final Word

The 70% figure mentioned earlier by Wald came on the back of two years of lows.

This is a great feat by the S&P 500 after a period of weakness.

The graph below shows record numbers of stocks above their 200-day average coincides with periods of growth:

Meanwhile, other data points to more positivity.

Earnings expectations have risen.

Or rather, the predictions of their decline have been cut. 5.5% was the initial forecast, but this has been revised to 4%.

Bear in mind this is after only ten days of reports.

The second half of the year’s earnings are not predicted to drop as well, which is unusual in this sort of environment.

There is a very high corporate performance in the US economy.