It has been the best and worst time for US equities benchmarks in the past two quarters, and that is perhaps the reason why Wall Street analysts face their most perplexing challenge yet.
The Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
According to Dow Jones Market Data, it has just presented its best quarterly performances since 1938 following a concussion pandemic that took place in March. That performance would be stellar if it weren’t for a few simple facts: The Dow posted its worst first six months of a calendar year since the 2008 financial crisis, while the S&P 500 posted its worst first half in a decade.
In other words, the returns enjoyed this quarter came after a troublesome quarter that was fueled by the emergence of the COVID-19 epidemic in the US and its subsequent punishing effect on the economy, with companies forced to hibernate to reduce the spread of the crisis. fatal infection
Since hitting the March 23 low at 2,237.40, the S&P 500 is up 38% to nearly 3,100, while the Dow is up 38.5% and the Nasdaq Composite Index COMP,
about 46% has recovered.
The problem is that there is no clear consensus on where the market is going from this point on, and strategists have been more inclined to raise their year-end prospects for the S&P 500 rather than lower them, even when markets have quickly exceeded your goals. and how coronavirus cases have brought about a revival in parts of the U.S.
Jason Goepfert, head of SentimentTrader and founder of independent investment research firm Sundial Capital Research, wrote in a note Tuesday that according to standard deviations, strategists have never been so confused about the prospects for the end of a year ( see attached table):
Meanwhile, Bloomberg News, citing a recent research survey by DataTrek Research co-founder Nicholas Colas, noted that a fifth of respondents said the S&P 500 will end the year 10% more than its current levels, and about the same number predicts the year will end in that grade.
Goepfert estimated that, based on another way of looking at the strategists’ standard deviation, expressed as a part of the S&P 500 at the end of June, the current divergence among analysts is the widest since 2009. It certainly is still quite wide. width (see attached table):
Sundial analysts said the average year-end target for analysts is 2,998 for the S&P 500, about 3% below where it currently is. According to Goepfert, that target coincides with the lower year-end target for where the S&P was trading at the end of June.
However, that can be a good thing. When the average target was so low, the market tended to perform well in subsequent six and 12 month periods, even if short-term market returns were not stellar.
Goepfert said the S&P 500 averaged more than 7% over the next six months, roughly from July to December.
It is when strategists are more optimistic that problems arise, he said, noting that the market tends to return a negative-1.7% through the end of the year during those periods.
The Wall Street Journal wrote that Bank of America analysts put a year-end price target of 2,900 in the S&P, abandoning previous calls of 2,600 and 3,100. Goldman raised the low end of its three-month target to 2,750 from 2,400 at the end of May as the index hovered around its year-end projection of 3,000, the newspaper reported.
Of course, it’s impossible to know where the market will end by the end of this dramatic year, considering all the variables the market must digest, including the 2020 presidential election that could affect equities and an economy that has seen tens of millions lose their jobs over the course of a few months.
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