What goes up must come down – words as appropriate about actions as they do about gravity, especially in today’s unstable world.
it bursts and falls even when there is no war or the Federal Reserve raises interest rates. And if it holds up a decades-old pattern, a healthy leap will come in the coming weeks – it may even have started – but it will fade just like spring into summer.
Model dates back to 1950, according to data analyzed by Barry Bannister, chief equity strategist of the investment bank Stifel.
For most of the past 70 years, the index has performed better from late fall to early spring, November 1 to April 30, compared to late spring to early fall, May 1 to October 31.
The model, Bannister wrote, makes the next six weeks “ripe for a demonstration.”
Following the pattern, Banister predicts the
S & P500
it can rise 7% by the end of April, to 4,607 from just over 4,300 right now. It came up with such a specific number by comparing the performance of the S&P 500 from November 1 to the present and historical data. Based on the past years, when the index performed worse in the autumn-spring than in the spring-autumn, the average return should bring the index to the Bannister target.
Shares have already risen in the past few days, with the S&P 500 up just over 3% from Monday’s low. A key factor is the growing possibility of a diplomatic resolution of the Russia-Ukraine war, which reduces the likelihood of further sanctions on Russian oil, frees up supply and prevents oil prices from rising, and dissuades drivers from buying gas. .
Bannister noted that a peace deal could act as a key catalyst to stimulate the equity gains he is planning.
However, there is a good chance the rally will be short-lived.
The Fed is expected to raise interest rates several times this year to ward off inflation. Such increases, combined with any potential economic fallout from the war, would slow economic growth. The Institute For Supply Chain Management’s Purchasing Managers Index has already shown a slowdown in year-over-year growth in activity in recent months.
There is a historical correlation between the buying index and the level of the S&P 500. The slowdown reflected in the purchasing index should take the S&P 500 to around 4,390 just after April, which would mark a steep drop from Bannister’s projection of 4,607.
This is consistent with another theme that others on Wall Street have come to expect: a higher risk premium on equities. In other words, investors will ask for a higher return on stocks to increase risk to the economy and earnings, driving down stock prices.
If the S&P 500 is trading at 4,390, the $ 230 in aggregate earnings per share that the S&P 500 companies are expected to generate this year would make the investor 5.2% above the index price level, a return in excess of 5%. implied by the 4,607 level.
The S&P 500 was up 0.4% to 4,376.03 at 12:51 pm on Thursday.
So, the takeaway: what goes up must come down. Stocks jump and fall. Don’t be surprised if a run-up next month fades.
Write to Jacob Sonenshine at email@example.com