There has been an image of the Wall Street’s iconic bull lying on its side floating around the Internet. However, this is actually far from the truth. U.S. stocks would need to diver down over 20% from peak levels and stay down for quite a while until considered a bear market. After the big stock market sell-off, the S&P 500 is only down 12.5% from its all-time high – that is not even enough for a 10% correction. It is easy for us to begin to worry when the majority of the trading screen is in red, but there is actually a strong case being made that stocks will only go up from here. Wall Street experts think that the S&P 500 will end around 2,100 – which is a lot higher from where the market currently is, but also means that stocks will have a small gain by the end of the year.
There are a few reasons why U.S. stocks will remain bullish. Let me outline them.
Right now, the U.S. economy is in pretty good shape, not close to a recession, which is when bear markets usually occur. The U.S. economy should grow almost 2% this year and unemployment numbers are down below to prior the Great Recession.
Sure, China’s economic slowdown is a little frightful and many think it will create widespread effects. True, China is the center of this global sell off, but only 2% of U.S. revenue from the entire S&P 500 come from China – a tiny amount. So, there is no need to worry about China.
Corporate earnings may be a little ugly, but this is only the first time since 2008. The only real industry that is struggling is oil. The price of a barrel of oil has fallen from over $100 last year to under $40 this year. However, healthcare and technology industries are still going strong.
One fatal mistake that could be made that would definitely tank U.S. stocks is by raising interest rates too early. However, Federal chairwoman, Janet Yellen said that there do not plan to raise interest rates until the economy is strong enough. Will the raise happen in September? December? Or even 2016? We will have to see.
Some believe that even after the pullback, stocks are still too expensive. However, the S&P 500 is trader just over 16 times forward earnings and the average for the past decade has been around 14. So, it is a little high, but not where it was at 18.
When you take a look at all of this, you’ll see that this really isn’t a trigger for a major downturn in the U.S. stock market and in the long term, this correction is a good thing.
Advisor Abbate 