Bearish Scenario: Sales below 78.99 with TP1: 77.93, TP2: 77.45, and upon its breakout TP3: 76.56 and TP4: 75.70 Bullish Scenario: Purchases above 78.00 (wait for a pullback to this area) with TP1: 1679.00 (uncovered POC*), TP2: 79.33, and TP3: 79.66 intraday
Where S&P 500 ends this year and starts the next one
2022-03-15 • Updated
S&P 500 was a gainer in 2019 with a rally of more than 25% so far. It seems like the index may show the best performance since 2013 and the third-strongest annual gain in 19 years.
The surge is based on several factors. Among them are an accommodative monetary policy of the Federal Reserve, strong American economic data, waning risks of the recession, and rumors about the closer US-China trade truce.
Many industries of the S&P 500 showed a great performance. According to the Market Insider, the first one is the information technology with a performance of 40.9%. The highest-weighted holding is Microsoft. Communication services are on second place with a 28.7% performance and Facebook as a leader of the industry. Financials and its performance of 26.8% is the third top industry. Berkshire Hathaway Class B is the highest-weight holding. The next one is industrials and its 25.3% with Boeing being the leader. And finally, the real estate with 23.1% gain and American Tower as a leader.
The most important question of the year-end is whether the index is able to set new records or the pullback is unavoidable. December 15 will become a sticking point in the Sino-US trade dispute that may either push S&P 500 up or cause a rollback. The United States is due to implement 15% tariffs on Chinese export. If that happens, China will retaliate with 5 % and 10% levies. Such a scenario will lead to a risk-off sentiment that will pull the index down. If the deadlock is broken, S&P 500 will get a chance to meet new highs.
What levels to expect
According to the data by the CNBC, the maximum target for the index price in 2019 is $3,250 (Deutsche Bank). The minimum target is $2,550 (UBS). The medium level is $3,000.
Source of the table: CNBC
However, the technical setup may show something different.
On the daily chart, the pair tested highs above $3,180. Up to now, it has been moving down. However, the fall may be limited. The further direction will depend on the tariffs’ outcome. In the case of the tariffs' implementation, the risk-off sentiment will pull the index down towards supports at $3,125, $3,091, and $3,070. If the market sentiment is supported by the trade truce, the S&P 500 will set new highs above $3,180. It has a long way towards the Deutsche Bank's projection of $3,250.
There is a high probability that the index will stay above 3,000 in any case until the beginning of 2020.
The year is near its end and it’s time to get some projection for 2020.
Wall Street’s analysts predict a modest rise of the index in 2020 compared to 2019. The risk reasons are a slowdown in America’s economic growth, reduction in stock buybacks, and high volatility due to the presidential elections, prolonged trade risks are likely to affect the willingness of the investors to buy stocks.
Bank of America considers an additional thread. The key components of indexes are mostly bought by passive funds, not active investors. It leads to the fact that fundamental stock indices are relegated to the background in the flow of funds. Around half of US stock ownership is passive. Such stocks have wider bid-ask spreads than usual that cancels potential transactions and suppresses liquidity of shares.
Source of the table: CNBC
The average forecast for the S&P 500 in 2020 is $3,272 by the end of the year (that is a 5% rise from the current levels).
Credit Suisse predicts the S&P 500 price at $3,425 that is about 9% upside from current levels. As for favored sectors, they are technology, discretionary, financials, industrials, and materials. The defensive sectors are supposed to lag.
Merrill Lynch places the target at $3,300. It sees the US domestic earnings to increase faster than multinationals, with slowing estimate cuts for value stocks and guidance being better for small-cap stocks.
JPMorgan declared that there could be as much as 25% earnings growth in the case of the US-China trade truce, but if only the deal cancels all the existing tariffs that have been implemented. It sounds not that realistic.
RBC Capital Markets sees the S&P 500 at $3,350 although there may be a near-term market top from excessive sentiment and near-term consolidation.
Source of the chart: Investing.com
On the chart above, you can see the highest, the lowest, and the average price projections for 2020.
Time to conclude
We can say that this year the S&P 500 was a great gainer. However, the surge may be limited next year. The major factors of the risk-off sentiment that may pull the index down are the American economic data, trade disputes, slowdown in the global growth and possible recession. The index is expected to stay above the $3,000 level. Nevertheless, the rise will not be that extensive as it was in 2019. Investors should pay high attention to the market environment checking the news. Analysts may change the forecasts during the year, that is why it’s important to be up to date.
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Bearish Scenario: Selling below 22.65 with TP1: 22.34 (intraday) and TP2: 22.02 (swing). Bullish Scenario: Buying above 22.70 with TP1: 22.90.
Intraday and swing scenarios based on price action and volume profile.