The S&P 500 enjoyed its second day above 2,000 on Tuesday, as the markets digested the belief that the Federal Reserve and other central bankers won’t raise rates until labor markets are in better shape. (The S&P closed Tuesday at 2000.02, beating the 1997.92 close of Monday, Aug. 25, when it crossed the mark with an intraday high of 2000.24.)
This development has investment experts predicting further market gains.
Janney Montgomery Scott analysts, for instance, see growing corporate profits and low inflationary pressures as arguments for easy monetary policy. The major cyclical components of the economy “are far from overheating, providing a sweet spot for stocks,” according to Mark Luschini, Janney’s chief investment strategist.
“We think the market is going higher,” said Ari Wald, Oppenheimer’s head of technical analysis, in an interview on MSNBC Monday. “We were buyers in early August, and we are still buyers.”
This thinking shouldn’t come as too much of a surprise to market watchers.
In May, Jeremy Grantham, co-founder and chief investment strategist of Grantham, Mayo, Van Otterloo & Co., outlined his view that the market most likely won’t see a major turn until after the S&P 500 hits a high of 2,250, but then the bulls could take over and pound investors — mostly like in late 2016.
In other words, Grantham says, the stock market bubble is still inflating.
(The investment guru suggests advisors watch two key statistics: Tobin’s Q, which tracks the relationship between the U.S. stock market value to U.S. net assets at their historic replacement cost, and the Shiller P/E ratio of current stock prices and those of the last 10 years of inflation-adjusted earnings.)
The SPDR S&P 500 (SPY) has been above its 100-day moving average all year, says Wald. “Does it continue to move higher? All the indicators say yes,” he told MSNBC, pointing to the relative ratio between high-beta and low-volatility stocks.
Market experts point to Fed Chairwoman Janet Yellen’s preference for low interest rates as a support for labor markets and strong corporate earnings.
“Most of the measures of prospective [economic] growth showed improvement” last week, according to Tom Stringfellow, president and chief investment officer of Frost Investment Advisors, in an outlook report released on Tuesday.
Stringfellow adds that the Future General Activity Index just hit its highest level since June 1992. “This upturn in optimism was also reflected in the New York Fed’s Business Leaders Survey, with one component of the index rising to a four-year high,” he explained.
Still, the expert shares, consumers remain “more than a little bit cranky.”
Is This a Bubble?
While Grantham says 2,250 puts the S&P in bubble territory, Stringfellow says we are seeing “a very steady rally.” He notes that this is the fifth-longest rally above the 200-day moving average since the late 1920s.