S&P 500: Will Stock Market Strategists’ Bottom Estimates Be True?

The S&P 500 is less than 100 points away from its June lows. It closed at 3,757.99 on September 22, which is 0.84 per cent lower than the previous day’s closing price. The market reversed from its June low when the S&P 500 closed its lowest point on June 16, 2022, at 3666.77. And, a further downside is expected amid rising yields environment affecting the valuation of equities.

So far in 2022, the S&P 500 index is down about 21%. From a low of around 2300 last seen in March 2020, the index had doubled to 4600 in December 2021 before falling to the level of 3700. The S&P 500 finds itself in bear market territory, falling nearly 20 percent from all-time highs.

But, if some analysts, economists and market strategists are to be believed, the S&P 500 bottom may still not be near. The S&P 500 is composed entirely of large-cap US stocks, which adequately reflect all aspects of the US economy, with information technology, health care and communications services being the top three sectors in the index.

According to Bernberg strategists including Jonathan Stubbs, the S&P 500 could be pushed further down after a rare technical indicator is breached. In the past 30 years, only during the technical boom and the global financial crisis, has the index moved below its 200-day moving average for more than 100 sessions. According to him, after the gauge crossed that threshold in both cases, it suffered most of its losses, falling 50% in 2000-2003 and 40% in 2008-2009 to reach its lowest point.

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This means that the maximum downside for the S&P 500 index may still be far away. There is a depressing view all around with many others talking of more downside for the S&P 500 index. Goldman Sachs Group has lowered its S&P 500 year-end forecast from 4,300 to 3,600, claiming that a sharp change in the outlook for interest rate hikes will hurt the values ​​of US equities.

The US Fed has already raised rates by 300 basis points in 225 and more such hikes are expected in the next few months. Evercore’s chief equity and quantitative strategist Julian Emanuel lowered his S&P 500 year-end forecast from 4,200 to 3,975 and expects a full return to June lows in the coming weeks. The target cut takes into account the greater likelihood of a recession, after Fed Chairman Jerome Powell warned that the rate-hike process would not be ‘painless’ for labor and housing markets.

Also read: US Fed dot plots September 2022 with federal funds rate target level

But, not everyone can be skeptical about the market conditions. Tom O’Halloran, partner and portfolio manager at Lord Abbett, believes the market has already bottomed out. According to him, the technical picture suggests more stocks are down, and the worst of the Fed’s action could be behind us.

(with inputs from agencies)

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