What’s it going to take to knock the U.S. equity market off-kilter?
After the prospect of a collapse of a giant Chinese property developer saddled with some $300 billion in debt saw blue chips put in their worst one-day decline in two months on Monday and the Federal Reserve confirmed on Wednesday it will soon start tightening monetary policy, the Dow Jones Industrial Average
DJIA,
ended the week higher.
Along the way the S&P 500 index
SPX,
booked its worst daily fall in four months and momentarily dipped below its 50-day moving average before closing out Friday with a respectable weekly gain, as did the Nasdaq Composite Index
COMP,
.
The week’s narrative included the Federal Reserve finally confirming it is going to wind down its bond purchase program, implemented during the worst of the coronavirus pandemic last year, now that the economy is recovering, and also signalling an eventual rise in interest rates, though Fed Chairman Jerome Powell pushed back against the idea that was a certainty next year.
We asked Michael Antonelli, market strategist at investment bank Robert W. Baird & Co. via email if the stock market was bulletproof:
After rephrasing our question and adding a smiley face for extra effect, here’s what Antonelli said:
Two things to remember: 1). There’s a ton of money sloshing around our system and when that happens it finds its way to risk assets like stocks. It has to go somewhere. 2) The stock market certainly thinks about and discounts all those things you mentioned, but it’s also looking at earnings and profits, both of which are expected to rise in 2022.
Based on earnings expectations and maintaining current multiples, Antonelli sees room for the S&P 500 to rally to 5,000 by the end of 2022.
Meanwhile, Morgan Stanley’s Michael Wilson is holding firm to a target of 4,000 for the broad-market benchmark by the end of 2021. In other words, Wilson is looking for a market correction in the order of about 10% from current levels.
It would seem that something has got to give?
Lindsey Bell, chief investment strategist for Ally Invest, described the start of the week’s action as a “storm” that “everybody saw coming, but nobody expected,” a reference to the potential default by China Evergrande
3333,
with some possibility of financial contagion in global markets.
Bell said that what was expected to be good for the stock market’s bears, who have been long expecting a retreat in equities, given the S&P 500 hasn’t seen a drawdown of at least 5% on a closing basis for more than 220 days, turned out to be a nothingburger for this resilient market.
via Ally Invest
…
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