S&P 500 FUNDAMENTALFORECAST: BEARISHVolatility could also be elevated in view of presidential debates and a pending US fiscal
S&P 500 FUNDAMENTALFORECAST: BEARISH
- Volatility could also be elevated in view of presidential debates and a pending US fiscal stimulus plan
- US presidential election, coronavirus resurgence, and rising US Greenback are among the many key dangers
- Latest selloff could show to be one other “wholesome correction” within the medium-term bull run
S&P 500 Index Outlook:
Since early September, US inventory markets entered a consolidative section, pausing a five-month rally that was primarily pushed by restoration hopes and Fed’s steadiness sheet enlargement. With the Fed members warning a prolonged restoration and missing fiscal stimulus help, fairness markets appear to have misplaced some steam. Unwinding actions have been seen in threat belongings, whereas safe-haven belongings have been on bid. The US Greenback Index (DXY) has climbed to a two-month excessive of 94.4.
Though the central financial institution has signalled no price hikes till yr 2023 within the newest FOMC assembly, a slowdown within the Fed’s steadiness sheet enlargement and its reluctancy to ease extra weighed on market sentiment (chart beneath).
S&P 500 Index vs. Fed Stability Sheet (2015-2020)
Some near-term headwinds embrace the US presidential election, a ‘second wave’ of coronavirus in components of the EU, and a pending US fiscal stimulus package deal. The primary Trump – Biden presidential debate can be held subsequent week, September 29 from 9:00-10:00 P.M. ET. This debate could draw hundreds of thousands of viewers and market volatility could rise through the debate. The CBOT VIX time period construction has doubtless priced-in increased volatility related to choices on the S&P 500 index main as much as the November election (chart beneath).
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Besides, credit score dangers are hovering amongst China’s property builders, most of that are extremely leveraged. Evergrande, one in all China’s largest actual property firm, has warned of a doable debt restructuring if it doesn’t get an IPO approval by finish January. A failure by Evergrande to satisfy its debt obligations, if occurs, will doubtless carry important ripple results to Asian bonds and shares.
VIX Volatility Index Time period Construction– as at 09/24/2020
Again to US markets, latest selloff in equities appeared extra like a “wholesome correction” in a medium-term bull run, as a result of there appears to be lack of systemic threat. The US financial system is driving a sluggish however regular restoration from the Covid-19 pandemic. The unemployment price has fallen to eight.4% in August from March’s excessive of 14.7%. Inflation – measured by US core CPI – has climbed to 1.7% in August from April’s low of 1.2%.
The Fed have revised up this yr’s median US GDP progress forecast to -3.7% from June’s forecast of -6.5%. In the meantime, the expansion forecasts for yr 2021 and 2022 have been barely revised all the way down to 4.0% and three.0% respectively.
Financial projection of Fed Board members and Fed Financial institution presidents, Sep 2020
Supply: federalreserve.gov
Beneficial by Margaret Yang, CFA
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— Written by Margaret Yang, Strategist for DailyFX.com
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