The wild ride in the index markets continued yesterday with a large overnight rally , a sell off after the 8:30 futures open, a big rally back up to the 1990 level, then push back down to the 1861 area before a big bounce back up in the final minutes. The day’s trade was another extremely volatile day on a list of many lately, and we do not expect that to change anytime soon. From the open to the close, the S&P futures (ESZ15.CME) traded in a 28 handle range, but at the end of the session closed right where it opened at 1874.75, while the Dow Jones futures (YMZ15.CBT) closed up fractionally, +33 points from its cash open at 15951.
While the media outlets say that part of yesterday’s rally was the public starting to buy stocks, we think the bounce was just another short covering rally before the ESZ trades lower. Wall Street has been turning less bullish on the stock market, and according to Birinyi Associates, the end of the year price targets for the S&P among 21 strategist say the S&P will close out 2015 at 2177, which would leave the S&P up 5.8% at the end of the year. This would mean the index would have to rally nearly 16% by years end.
On Monday, Goldman Sachs (GS) lowered its price target for the S&P from 2100 down to 2000, which would mean the S&P would close down nearly 3%. Royal Bank of Canada (RBC), Bank of America (BOA), and JPMorgan Chase all lowered their year end targets. As many of the year end projections are being slashed, MrTopStep is sticking with the 2150 to 2200 year end target. Below is where other strategists see the S&P at the end of 2015.
Goldman Sachs slashes S&P 500 Price and Earnings Forecasts
No one wants the S&P to keep going down, but there seems to be no shortage of pessimism in the marketplace right now. No one knows for sure how the next four months will play out, but we do not think it will be bad as everyone thinks.
Goldman Sachs has lowered its S&P 500 earnings and price forecasts. In a note dated Sept. 28, but released yesterday, strategists led by Goldman’s chief U.S. equity strategist, cut the S&P 500 year-end target to 2,000 from 2,100. “‘Flat is the new up,’ will be the investor refrain for 2016,” said David Kostin in the note. “Our baseline forecast is that the U.S. economy will grow at a modest pace, earnings will rise, and the S&P 500 index will climb slowly while the [price-to-earnings] multiple declines as interest rates rise,” he said. The investment bank also cut its 2015 S&P 500 earnings-per-share forecast to $109 from $114, representing a 3% year-over-year decline in earnings. For 2016, Goldman sees the S&P climbing 5% to 2,100, with earnings per share for the benchmark coming in at $120, down from the previous forecast of $126
Like we said, no one knows for sure where the S&P is heading, but as the markets move into the best 6 months for stocks in November, we are sticking with the year end statistics that say the markets will move back up at year end. There have been way too many times that we see a sharp sell off in September and October, followed by a sharp rally. I have often referred to October as the “spooky” month, and while there are some historical declines in October, it also known as the “bear killer”. More bottoms are made in October than any other month, and while it has a negative stigma, the month overall is solidly bullish on the historical calendar. Furthermore, the final quarter of the year is historically the best performing period.
I noted that the last couple of years, that after September 19th, the S&P traded lower into month’s end and made a bottom sometime in the early part of October, and in turn rallied into years end. That’s exactly what we could see this year as fund managers have seen their year end bonus disappear with the sell off. They got too short after the initial low was made, and now need to mark up stocks with a year end rally to restore their positive performance.
In Asia, 10 out of 11 markets closed higher (Nikkei +2.70%), and in Europe 11 out of 12 markets are trading higher (DAX +2.44%) this morning. Today’s economic calendar starts with MBA Mortgage Applications, ADP Employment Report, Chicago PMI, EIA Petroleum Status Report, Janet Yellen speaks, and Lael Brainard speaks.
1 TRADING DAY LEFT IN Q3
Our View: Today is the last trading day of the 3rd quarter and the September quarterly rebalance. The level of volatility is off the map. Yesterday the ESZ sold off 28 handles from the high, then rallied 16 handles late in the day to close nearly unchanged. Behind all this movement there is one word that persists; fear. Is it over yet? No, it’s not over. Have we seen the low of this move yet? No, I don’t think so. Will the markets remain volatile? Yes, and may become more so. In addition to tomorrow being the last trading day of September and the 3Q rebalance, Janet Yellen speaks and Lael Brainard speaks. On Thursday John Williams speaks, and on Friday traders will get a look at the September jobs report, and 5 separate Federal Reserve Bank presidents are speaking. This all spells volatility. Our view, is for more of the same, sell the early rallies and buy weakness.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher : Shanghai Comp. +0.48%, Hang Seng +1.41%, Nikkei +2.70%
- In Europe 11 out of 12 markets are trading higher : CAC +2.68%, DAX +2.44%, FTSE +2.19% at 6:00 am CT
- Fair Value: S&P -9.76, NASDAQ -13.38 Dow -110.31
- Total Volume: 2.3mil ESZ and 6.8k SPZ
- Economic calendar : MBA Mortgage Applications, ADP Employment Report, Chicago PMI, EIA Petroleum Status Report, Janet Yellen speaks, Lael Brainard speaks .[s_static_display]
No responses yet