Jayson DerrickTo say that the S&P 500 performance in 2020 has been a continuation of 2019 was an accurate statement through the first few weeks of the new decade. To say that this is the case in early March would be a grave error.
The S&P 500 index hit a record closing high of 3,386 in early 2020 but coronavirus-related concerns sent the index plummeting lower. The index has since fallen more than 15 per cent. Among the 500 stocks included in the index, more than 40 had lost more than half of their value.
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S&P 500 latest news part one: let the good times roll
Street analysts had many reasons to be optimistic in their S&P 500 predictions at the end of 2019. After all, the “phase one” trade deal between the US and China was signed and US President Donald Trump called off an airstrike against Iran a few months prior which could have expanded into an all-out war.
Meanwhile, the American consumer ended 2019 in great shape – incomes were rising, unemployment was near-record lows. A combination of tax cuts from prior years and cheap gas at the pump meant the consumer was ready to help fuel the economy's growth in 2020 and beyond.
In other words, the times were good. Piper Jaffray analyst Craig Johnson’s S&P 500 forecast called for a 12.8 per cent gain – the most bullish on the Street. This was followed by BTIG’s Julian Emanuel and Canaccord Genuity’s Tony Dwyer who modeled for an 8.1 per cent gain and a 7.8 per cent gain, respectively.
Part two: coronavirus spooks investors
The coronavirus started to dominate global headlines in late 2019 as China’s government confirmed ahead of the New Year that dozens of its people became sick in Wuhan. The virus slowly started to spread across the world over the coming weeks but investors mostly brushed off any concern.
Many Wall Street analysts stuck with their SPX forecast in early February. For example, JP Morgan’s head of global and European equity strategy commented that the “fallout from the outbreak is unlikely to hurt [economic] activity prints over the medium term”, according to CNBC.
Morgan Stanley’s head of US equity strategy was on the wrong side when he commented that the correction “will be contained to 5 per cent.”
From this, the only conclusion investors can make is that no conclusion can be made. Experts were caught off guard and can’t be counted on to be trusted with any future S&P 500 forecast.
Part three: Saudi Arabia declares an oil war
Saudi Arabia’s public break-up with Russia marked an end to a multi-year partnership to support oil prices. In return, a de facto oil war was declared with Saudi Arabia threatening to increase its daily production to flood the global oil market.
US oil companies would likely be caught in the middle, many of which are small and at a serious disadvantage against industry titan Saudi Aramco. At the time of writing, the US federal government was only rumoured to be preparing a financial assistance package for the industry.
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Oil prices crashed more than 30 per cent in a single day on March 9 and sent many oil stocks included in the S&P 500 index lower. Most notably, Occidental Petroleum, fresh off its $55bn acquisition of Anadarko Petroleum, lost around 50 per cent and was worth just $11bn.
Energy stocks' devastation brought its total representation in the S&P 500 index to around 3.6 per cent. Regardless of any progress in tackling the coronavirus, all S&P 500 index analysis forecasts for 2020 need to be altered given a drastic, dramatic and sudden shift in oil dynamics.
S&P 500 Index analysis: volatility, volatility, volatility
Part of the difficulty in attempting a year-ending S&P 500 index forecast is due to the extreme day-to-day volatility which gained momentum in late February.
Here is a list of the largest daily point gains for the index. The pattern should be obvious.
The same pattern presents itself in the list of the largest daily point declines for the index.
S&P 500 Index forecast: what’s next? Who knows?
What’s next for the stock market can be summarised in three words: no one knows.
As of the time of writing, the S&P 500 index finished a monster rally (March 10) and gained more than 135 points. But one day prior the index collapsed 225 points. So is the rally back on? No, because a look at the futures market points to a 40 point loss.
The market is either up big or down big. There is no middle ground – at least for the time being. Investors looking at very short-term trends and jumping to a conclusion, either way, could get caught on the wrong side of the SPX analysis.
The fact is there are too many unknowns plaguing the market.
A quick scan of the most recent news shows the UK minister Nadine Dorries tested positive for the coronavirus. Across the pond, New York State dispatched the National Guard to New Rochelle. Should these trends play out across the world and more regions are placed in complete quarantine as in Italy, SPX forecast calls for more selling. How much more is unclear.
But there is simultaneously a handful of encouraging news. Scientists in Israel are weeks away from a potentially working vaccine for the coronavirus while scientists at the University of Tennessee may have found an actual cure.
Assuming either option can be scaled and mass-produced for worldwide consumption in record time, the coronavirus could become a distant memory by the end of the year. But even if this is the case, how much can the index rebound? Some of the losses? Most of the losses? All of the losses? Who knows?
Make up your own S&P 500 index forecast and benefit from its price fluctuations through CFDs.
