Why the S&P 500 Gained't Break 6000 (But)

Once I was rising up, I beloved Select Your Personal Journey books.  I see the world in shades of grey as an alternative of black-and-white, so I used to be instantly drawn to the seemingly infinite situations that the principle characters might expertise as I made totally different decisions for them.

As buyers, we frequently get so caught up in a single explicit market narrative that we’re unable to assume “outdoors the field” and contemplate different attainable outcomes.  Profitable buyers I’ve labored with have been exceptionally good at all the probabilities, difficult their very own funding thesis by opening themselves as much as different choices.

At this time, we’ll stroll by way of 4 potential outcomes for the S&P 500 index over the following six to eight weeks.  As I share every of those 4 future paths, I am going to describe the market circumstances that will possible be concerned, and I am going to additionally share my estimated likelihood for every state of affairs.  

By the best way, we ran by way of 4 situations for the S&P 500 again in July, and you might be stunned to see which state of affairs really performed out!

And keep in mind, the purpose of this train is threefold:

1. Think about all 4 potential future paths for the index, take into consideration what would trigger every state of affairs to unfold by way of the macro drivers, and evaluation what indicators/patterns/indicators would verify the state of affairs.
2. Resolve which state of affairs you’re feeling is most definitely, and why you assume that is the case. Remember to drop a remark and let me know your vote and what you assume will trigger that state of affairs to play out.
3. Take into consideration how every of the 4 situations would impression your present portfolio. How would you handle danger in every case? How and when would you are taking motion to adapt to this new actuality?

Let’s begin with probably the most bullish state of affairs, the place the S&P 500 retains going with a constant tempo and breaks above 6000 by early December.

Choice 1: The Tremendous Bullish State of affairs

The S&P 500 has skilled a remarkably robust run off the low in early August.  This primary state of affairs would imply a continuation of the tempo of the present development, suggesting the SPX would stay above a trendline drawn from the August and September lows.  This state of affairs would come with the S&P breaking above 6000 for the primary time, and by early December, we would be questioning how we made it by way of a complete calendar yr with the largest drawdown sitting at simply lower than 10%.

Dave’s Vote: 5%

Choice 2: The Mildly Bullish State of affairs

For instance that Trump wins a second time period, and buyers see that as a reasonably pro-business and pro-market consequence?  However on the similar time, new financial information and the November Fed assembly go away buyers a bit of skeptical of the Fed’s capability to navigate the tender touchdown state of affairs into early 2025?

The second state of affairs would imply we drift a bit greater, however breadth circumstances break down as buyers gravitate to Magnificent 7 shares and different protected havens because the VIX pushes above 20.  We do not see a significant correction into early December, but it surely nonetheless seems like one is simply across the nook and everybody’s speaking about overvaluations and a possible Q1 pullback.

Dave’s vote: 25%

Choice 3: The Mildly Bearish State of affairs

A Harris victory might actually weigh on the markets as we progress by way of This autumn, as we understand how a lot buyers had been pricing in a Republican White Home.  Skepticism of the Fed reaches a fever pitch as we’re not speaking a couple of potential tender touchdown, however fairly when the following main correction will play out.  Quantity and breadth divergences which have been rising in October proceed to play out, and a 2018-style This autumn drop turns into our actuality in 2024.

Dave’s vote: 50%

Choice 4: The Very Bearish State of affairs

You all the time want a “doomsday” state of affairs, the place issues get unhealthy and keep unhealthy.  What if the S&P 500 begins promoting off as a irritating earnings season leads right into a contentious election and a November Fed assembly raises extra questions than solutions?  Paul Tudor Jones famously remarked, “Nothing good occurs under the 200-day transferring common.”  And on this state of affairs, that is precisely what we’re dealing with in December as we surprise the place how and why the traditional This autumn rally is nowhere to be seen.

Dave’s vote: 20%

What chances would you assign to every of those 4 situations?  Take a look at the video under, after which drop a remark with which state of affairs you choose and why!

RR#6,

Dave

PS- Able to improve your funding course of?  Take a look at my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation.  The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.  

The creator doesn’t have a place in talked about securities on the time of publication.    Any opinions expressed herein are solely these of the creator and don’t in any manner characterize the views or opinions of some other particular person or entity.