Robert P. from Sarasota, FL asks: If I recall correctly, earlier in the year you said you could see the S&P 500 going up by mid- to high-single digits this year. It looks like the index has already done that, and it is only July. Are you rethinking your forecast, and/or do you think the market is essentially done for the year?
Mitch’s Response: That’s a keen observation, Robert. At the beginning of the year and throughout it, I have been calling for a solidly positive year for the S&P 500…not too hot, not too cold. My belief was that we would continue to get “muddle-through” GDP growth rates in the economy (~2%), but that a significant earnings bump in the back half of the year would support higher stock prices. I still think that to be the case today – even though as you correctly point out, the S&P 500 is already up nearly +10% year-to-date.
So where can U.S. stocks go from here? I think the short answer is: “even higher.”
My basic view on this market is that sometime between now and the end of the year we are likely to experience a broad market correction, perhaps in the range of 10% – 15%. Market corrections are by definition short-lived, however, and so I can still see the S&P 500 finishing the year on a strong note. The timing of all of this market action is the big unknown – it might not even happen this calendar year – and I will not even attempt to put a timeline on it. My base case, at the end of the day, is that this bull market still has room to run, but that it is also due for a correction.
When Zacks offers forecasts in our Stock Market Outlook reports and I write predictions in my weekly column or elsewhere, they are meant to serve as a proxy for how we see the next twelve months going – they aren’t meant to be a rigid forecast for what the market will do exactly from January 1 to December 31. Markets don’t work on calendars, and for all we know the correction I mentioned above could take hold on December 1st and wipe out the year’s gains in a month’s time. I’m not saying that will happen, but it is certainly possible. The key point of focus should remain on where we think stocks can go from here, and I think conditions are still conducive for rising prices.
A follow-up question you may have reading my response is: should I reposition my portfolio for this “imminent” correction? For that I say the answer is no – corrections are unpredictable and we could experience months of further gains before a pullback, if we even see one at all this year. Making portfolio adjustments in anticipation of a market correction is the equivalent of short-term market trading and timing, neither of which we advocate here at Zacks Investment Management. Now is a good time to simply stay the course, and focus on the fundamentals.
To help you keep an eye on important fundamentals that could impact your investments, we invite you to download our just-released Stock Market Outlook report. This report will give you the scoop on how investments may be affected by new perspectives and turbulence in Washington. Learn how what we are seeing for GDP growth, long-term interest rates, where the S&P 500 will be at year’s end, and much more. Click on the link below to download your free copy today. And if you are still looking for additional insights and resources to help you manage your investments, we invite you to talk to one of our investment advisors at no cost to you. Simply call us at 1-888-600-2783.
Disclosure