S&P 500 Hits A New All-Time High – What’s Next?
By Staff of Admiral Markets
Tuesday, August 25, 2020 4:43 AM EDT
While the US economy still finds itself in a recession with the unemployment rate having hit more than 10%, millions of people being fired from service jobs due to the Coronavirus lockdown, delinquencies in the mortgage area having passed more than 8% hitting its highest levels in 9 years, US equities have reached new all-time highs.
At first glance, it looks as if this decoupling of the Equity markets from the real economy will likely not last very long and the higher Equities rise now the more aggressive and brutal the following drop will likely be – but wait… S&P 500 at 3,800 and higher in 12 months from now?
Even though we can imagine a sharper correction to occur, especially amid the rapid growth of tech stocks, given recent developments around the Fed, we imagine the recent push to new All Time Highs in the S&P 500 is a very bullish sign for the upcoming 12 months – and statistics prove so.
Last week on Tuesday the Fed mentioned something very interesting in its minutes: the statement said that some FOMC members are worried about yield curve control since this could result in excessive balance sheet growth.
Since this was one potential driver for the drop in the US-Dollar and for the push higher in precious metals like Gold and Silver, but also a rally in growth stocks, this reservation could potentially be a reason to consider long engagements in US equities.
The latest economic data from the US has significantly surprised on the upside with the Citi Economic Surprise Index having pushed from one All Time high to another in recent weeks and months. This suggests that 10-year US yields are simply too low, from a purely global macro perspective. Therefore, a strong move higher could be imminent. However, the US central bank may then have to act, since such a move and potential rotation from growth stocks back into value stocks could result in elevated volatility in Equities, something the Fed will likely not allow in the current, very fragile market environment.
The moment this scenario plays out with the Fed establishing such a rate cap, despite the sluggish US economic outlook, the S&P 500 could start a serious rally, something which is underlined by former pushes in US Equities to new All Time Highs.
In fact, when looking at the time span from 1950 to today, when it takes more than five months to make a new All Time High (as it has now, February – August), the average 12-month return for the S&P 500 has been 11.4%.
