Earlier this week, David Gaffen of the Wall Street Journal asked me for my 2009 S&P 500 (SPX) target.
Under normal circumstances, I would have given him a number and my rationale for the target. However, these are not normal circumstances.
The biggest problem is that nobody knows what the second-half of the year is going to look like. A lot of people are guessing. (You can see what other strategists said on the Journal's MarketBeat blog.) The problem is that everyone is making guesses that could very well turn out to be really wrong.
The consensus earnings estimate currently states that S&P 500 profits will total $64.69, a 6% decrease from 2008. However, during just the past 4 weeks, 11 FY09 earnings estimates have been cut for every one that has been raised, continuing a trend that occurred throughout 2008.
Knowing this, do you want trust a target based on that consensus estimate? I sure don't.
I foresee 2 scenarios that would impact where the S&P 500 ends up 12 months from now.
The first scenario is that economic conditions don't improve, and even worsen. This means placing an increased emphasis on consumer staples, drugs/health care and defense stocks. It also means a new low for the S&P 500 and another down year for stocks.
The second is that economy does rebound in the second-half of 2009 or that we have enough visibility to foresee a rebound occurring in 2010. This means investing in infrastructure, technology and commodity stocks.
If we do get an economic rebound, or at least a good sense that 2010 will be better, it is very possible that the S&P 500 could end up near resistance around the 1020 level, which would be about a 20% increase. However, if things don't improve and 2010 looks questionable, stocks could fall further.
We'll make whatever adjustments are necessary to the Focus List to take advantage of the actual conditions presented throughout the year.
A quick note about treasuries. I think it is too late to get in on the bond rally. Bonds could still appreciate a bit more, but not enough to justify the risk of chasing performance. Given the threat of deflation, I don't foresee a significant increase in yields over the foreseeable future either, but inflation-adjusted treasuries would be a better play for someone who depends on bonds for income.
Zacks Elite Portfolio Updates
No changes were made to the Zacks Elite portfolios this week. One of our goals for 2009 is to continue to increase the size of all 3 portfolios.
The Markets
The year ended with a small rebound in stocks. Heading into 2009, it is possible that we could a get an Obama rally headed into the inauguration.
Since early November, the S&P 500 has had difficulty trading above 910. The index has broken through that level today, though volume is below average. It will be interesting to see how sustainable the recent upward move is.
The best thing traders can do is brace for more volatility. It is very possible that both new lows and higher highs could be set this year.
Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com
Click the XML Icon Above to Receive Stock Market Articles Via RSS!
