Forget the S&P 500 Crashing, Strategist Sees New High


Oct. 31 2019, Updated 1:31 p.m. ET

Tony Dwyer of Canaccord Genuity sees a new high for the S&P 500. In an interview with CNBC on Tuesday, he said that equity markets have gone through a third mini-recession. According to Dwyer, the first two mini-recessions were the European debt crisis in 2011–2012 and the Asian commodity crisis in 2015–2016.

He expressed similar views in September. Dwyer predicted that weak manufacturing numbers wouldn’t slow the bull run. In September, the ISM (Institute for Supply Management) PMI was 47.8%—the lowest level since June 2009. The October ISM PMI data is set to be released Friday.

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Last two crises

In 2011, the European debt crisis hit financial markets. Bailout packages helped restore investors’ confidence in equity markets. In a surprise move in August 2015, the People’s Bank of China devalued the Chinese yuan to maintain export competitiveness. The devaluation rattled equity markets around the globe. The S&P 500 fell 6.2% to around 2,000 in August 2015. Tremors from the Chinese slowdown were felt worldwide. Metal and mining companies were hit especially hard due to China’s slowdown. Usually, any weakness in a domestic currency is positive for exports. However, the move sparked fears of a slowdown in the world’s second-largest economy. Furthermore, China’s slowdown is worsening. To learn more, read China’s Slowdown: Will Trump Get Better Terms?

An important pattern

Dwyer outlined an important pattern between the S&P 500 and ten-year bonds. Based on the pattern, Dwyer expects the S&P 500 to gain more. He expects the S&P 500 to reach 3,350 in the first half of 2020, which implies an approximate 10% upside from its current level. In the same interview, strategist and commentator Josh Brown pointed out that the Financial Select Sector SPDR ETF was at a 52-week high and could be close to breaking out. Brown also thinks the yield curve’s inversion has ended. He suggested that Google’s (GOOGL) and Apple’s (AAPL) stock price increases show that equity markets have room to grow. Brown thinks that a steeper yield curve is positive for equity markets. DoubleLine Capital CEO Jeffrey Gundlach thinks that when “the recession is getting to be close to your doorstep, the curve actually steepens.”

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Is US GDP slowing?

Recession pundits have been forecasting doomsday for quite some time. While economic data points reflect a slowdown, a recession doesn’t appear to be on the horizon. The US third-quarter GDP growth shattered expectations. The growth surprised on the upside in the first and second quarters as well. While the manufacturing sector hasn’t been as strong, the US consumer sector has been doing well. Strong consumer spending offset weakness in other sectors. The Fed supported the economy and lowered rates by another 25 basis points yesterday, and the S&P 500 closed higher.

Trump is the only hope for the S&P 500

Since Donald Trump needs to keep the economy strong before the 2020 presidential election, he might unveil another round of fiscal stimulus. The move could boost the S&P 500. Moody Analytics thinks that any weakness in the economy and employment situation could impact Trump’s chance at being re-elected.

S&P 500’s moving averages

Yesterday, the S&P 500 closed 2.5%, 2.8%, 3.1%, and 5.7% above its 20, 50, 100, and 200-day moving averages, respectively. Prices above these key moving averages suggest bullishness. However, the difference between the 50- and 200-day averages has contracted to 2.5%—the smallest since June.

Meanwhile, the Dow Jones’s averages are at risk of crossing over. To learn more, read Dow Jones Death Cross Risk Is Highest Since April.


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