The S&P 500 has sat just short of 8,000 points since its midsummer rally, and analysts and portfolio managers doubt it will close the gap. Third-quarter earnings are expected to be strong, but that growth rests on a handful of firms while oil and Treasury yields climb.
Many analysts and portfolio managers are skeptical the S&P 500 will reach 8,000 points, even though third-quarter earnings expectations are strong. The index has hovered just below that level since its midsummer rally.
Oil and yields raise the bar
Since the last earnings season in July, oil has climbed above $105 a barrel from $84, and the US 10-year Treasury yield has pushed to its highest since 2002. Higher oil prices and rising yields don't typically help stocks, and November's midterm elections add uncertainty.
According to Julien Lafargue, chief market strategist at Barclays Private Bank: "Good is not going to be enough."
Positioning already reflects the caution. RBC Capital Markets trimmed US technology to market weight, while Citigroup dropped its overweight call on US equities. The S&P 500 is up 13% this year.
Chip results fail to lift sentiment
Last week, Samsung Electronics projected more than $80 billion in quarterly operating profit, yet investors shrugged. The Philadelphia SE semiconductor index has since fallen every day after the results, and a lackluster start to the US earnings season, led by banks, has heightened concerns.
Growth rests on a few firms
LSEG's Tajinder Dhillon expects S&P 500 earnings to grow 30.6% year-over-year in the third quarter. However, HSBC estimates that excluding the Magnificent Seven, technology and energy firms, earnings for the rest of the index will grow just 5%, down from 14% in the previous quarter.
Breadth tells a similar story. A Reuters analysis of LSEG data showed that 62% of components were trading below their 50-day moving averages, even with the index near record highs.
Not everyone is convinced the rally is exhausted. Some argue the bull market has further to run, with higher yields a test it has so far passed.
Source: Reuters via Investing.com
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