The S&P 500 and 2,500
Reaching the Elusive 2,500 Level!

by Ian Harvey

July 12, 2017


Are we there yet……are we there yet…..are we there yet!!!

The S&P 500 Index (SPX) finally managed to break above the 2,400 level, but it took another month, due to the roller-coaster ride that ensued, before reaching the 2,450 mark. Since this time a range-bound situation has arisen, but it managed to reach 2,453 on June 19.

Even so, optimism continues to surround the U.S. equity markets; where year-to-date the S&P 500 index has climbed 7.6% on a price basis – which means there should be a 15% return or better for the year.

The S&P 500 is not greatly overvalued with the forward P/E currently sitting at 18.7; and with the earnings season starting next week in earnest, where a strong quarter is predicted due to positive earnings results – read “Earnings Season Ahead” – it is therefore, only a matter of time before the 2,500 mark is breached.

Catalysts to Boost the S&P 500 to the Elusive 2,500

Not only will the earnings season be a boost to the strength of the S&P 500, but several other factors will be catalysts to help push it higher. Traders and investors remain constructive on equities and have set the stage for a positive year in U.S. stocks due to …….

  • A pickup in global activity, stronger EPS, reasonable valuations, low inflation and consistent, negligible interest rates will continue to buoy the S&P 500.
  • Lack of government interference has set the stage for a positive year in U.S. stocks; and even as the Fed raises rates, the effect will be negligible as cash is in plentiful supply to off-set this situation. On top of this, if modest growth is the norm, then the Fed will baulk at increased rates.
  • However, the economic indicators say there is plenty of reason to move higher as GDP growth will likely be double the Q1 level. And that means earnings growth is looking up. That will be witnessed with a strong display over the next few weeks as the earnings season gets underway. Large cap and growth stocks should outperform under this scenario.
  • International markets have already delivered handsomely; and with these stronger conditions globally and a tight labor market, a pickup in nominal GDP should be experienced.

Analysts Opinions Relating to the S&P 500 Levels.

RBC Capital strategist, Jonathan Golub, wrote in a note to clients on Monday that he was raising his price target for the S&P 500 to 2,600 from 2,500, representing 7 percent upside from Friday's close. The new forecast ranks second behind Morgan Stanley strategist Mike Wilson's S&P 500 target of 2,700, which is the highest target on Wall Street.

Golub wrote, "Equities would do quite well in the near term, led by financials as well as the most cyclical groups such as materials, industrials, and energy. Small-cap, value, and more globally oriented names would also do quite well. By contrast, low-vol and the bond proxy sectors would come under pressure."

As a result of his analysis, Golub increased his earnings-per-share estimate for the S&P 500 to $130 from $128.

Also, Goldman Sachs has increased its forecast for the S&P 500 this year as the influential Wall Street bank becomes more optimistic on growth in the technology and financial sectors. (Read “Tech Stocks Continue Rally”)

In Conclusion

A display of earnings health may be all that is needed to convince investors, and traders alike, that the bull rally is still in good shape; which will provide the next leg up for the journey to 2500 and beyond.

We, at Stock Options Made Easy, believe that the bull rally is continuing, and remain quite optimistic that the S&P 500 is in good shape and will continue its journey northward to the 2,500 level, and hopefully further; which means more profits for us and members.

If you are at logger-heads as to knowing how to play the situation going forward, or would like to add an extra arrow to your trading quiver, get on board with the members of Stock Options Made Easy.

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