The S&P 500 is off about 21.4% this year (as of Oct 6, 2022). Heightened rising rate worries amid super-hawkish Fed cues, red-hot inflation, supply chain woes and the Russia-Ukraine war have dampened Wall Street this year. The index saw the worst start to a year since 1939. However, after a prolonged downfall, things appear to be changing for the S&P 500 Index.
But according to Fairlead Strategies founder Katie Stockton, the weakness, while it is likely to continue in the short-term, will be temporary, as quoted on Business Insider. “I still do see this as a cyclical bear cycle within a secular bull trend. I believe that the uptrend going back to the 2009 lows is still intact,” Stockton told CNBC on Friday, as quoted on Business Insider. Stockton’s analysis is based in part on a long-term technical model called the Ichimoku Cloud model.
CNN’s Fear and Greed Index are currently in the “fear” category. If you follow Warren Buffett, you may find it a buying opportunity. Buffett suggests one to be greedy when others are fearful. The earnings growth prospect is still decent, if not great. The projected rise in S&P 500 earnings per share this year stands at 7% on 10.5% upside in revenues, per Zacks Earnings Trends issued on Oct 5, 2022.
The S&P 500’s rally to start October was probably a dead-cat bounce. But longer-term, investors may expect a bottom to come in the stock market in the first half of next year that will finally result in long-term uptrend. Credit Suisse expects strength in the labor market in 2023. Falling commodity prices will offset rising service and rent prices, resulting in less likelihood of a recession, as quoted on Wall Street Journal. However, Citi expects a recession in 2023.
Last month, Goldman Sachs cut its year-end 2022 target for the S&P 500 by about 16% to 3,600 points. Now, Credit Suisse and Citi also reduced a 2022 year-end target for S&P 500. Citi Research analysts cut their year-end 2022 target for the benchmark S&P to 4000 from 4200 and set a year-end 2023 target of 3900, as quoted on Wall Street Journal.
Credit Suisse slashed its year-end 2022 target for the benchmark index to 3850 from 4300. It also said it expects stocks to rise again next year, pointing toward a climb back to 4050.
Valuations Are Not Dirt-Cheap Yet
The S&P 500’s mean P/E ratio is 15.98X, median P/E ratio is 14.90X and minimum P/E ratio is 5.31X. And the current P/E ratio of the key U.S. equity gauge is 18.92X as of Oct 6, 2022.
ETFs to Watch
Against this backdrop, investors may track S&P 500 ETFs like Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV and SPDR S&P 500 ETF SPY.
Investors can also play the growth part of the index with SPYG and the value part of the index with SPYV. SPDR Portfolio S&P 500 High Dividend ETF Fund SPYD is a good bet for the dividend plays of the index. SPYD yields 4.29% annually
Investors can also bet on leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares SPXL, ProShares Ultra S&P500 SSO and ProShares UltraPro S&P500 UPRO while the index is on an uptrend.
If the S&P 500 index shows a declining trend, then investors can play ProShares UltraPro Short QQQ SQQQ, ProShares Short S&P500 SH, ProShares UltraShort S&P500 (SDS) and ProShares Short QQQ (PSQ).
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