A previous version of this article incorrectly referred to a statistic involving five-month winning streaks for the S&P 500. The article has been corrected.
Carrying the team.
Pandemic worries, election uncertainty, U.S.-China tensions — none of that is enough to sway this tough bull market, says LPL Financial’s chief market strategist Ryan Detrick, in our call of the day.
Detrick tells clients that markets are probably pricing in a too-optimistic near-term economic recovery scenario, and “work is still needed for stocks to grow into their current valuations.” But he has upped his own S&P 500 SPX, +0.52% target to 3,450-3,500, citing five reasons why the path of least resistance is higher.
- COVID-19 is getting under control, with U.S. daily case and hospitalizations down from the spring peak. We can hope a vaccine will arrive by year-end, but we also “have a better playbook of how to contain the virus’ spread and treat patients than we did in the spring.” Detrick says.
- Economic data continues to improve, with third-quarter GDP possibly reaching a record 30%, and retail sales past their pre-pandemic peak. More stimulus from Congress may still come before the election, he says. (Scroll down for some upbeat data that came out Tuesday)
- “Momentum breeds momentum.” When the S&P 500 has risen five-straight months such as April through August, stocks have historically moved higher. The last 26 times the index saw a similar string of gains, it was higher a year later — 25 times, he notes.
- Earnings estimates are picking up. “Though not always predictive, estimate increases have tended to come in bunches, so we think the odds are good that estimates may continue to rise and third-quarter earnings from corporate America may surprise to the upside,” says Detrick.
- The winners will “continue to carry” this stock market. “The so-called ‘work-from-home’ stocks have powerful secular tailwinds that have only strengthened during the pandemic. We estimate more than half of the S&P 500 is either unaffected by the pandemic or benefiting from it, with about 40% of the index in technology, digital, media and e-commerce,” said Detrick. And even though the recession has hit the economy hard, consumer staples, health-care and tech stocks are all poised to see earnings gains this year, he said.
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