Looking a little deeper
In the midst of negative headlines coming out of Greece, Spain, China and the Middle East, Canaccord Genuity U.S. Portfolio Strategist Tony Dwyer takes a look at the downside. As of Sept. 14, 73% of NYSE issues closed above their respective 200-day moving average. When this has happened since 1994, the S&P 500 tacks on an average additional gain of 12.2% prior to the next 5% correction.
A move back into the support zone of 1400-1420, less than a 5% correction, should be enough to work through the near-term overbought condition and set the stage for the next leg higher toward 1500+.
While the news can be worrisome, Dwyer points to three key areas that should drive growth : 1) Record setting corporate credit new issuance coupled with the increase in Commercial & Industrial Loan demand suggests new money is readily available to companies; 2) While the outcome of the election is somewhat uncertain, the fiscal cliff is looming and unemployment remains high, consumer confidence continues to improve; and 3) The housing market continues to show signs of growth, with single family home sales and traffic trending higher from historically depressed levels. He is not saying the housing is strong, just strengthening, noting that strong housing typically occurs toward the end of the economic and equity market cycle.
All in, Dwyer maintains his 2012 S&P 500 target of 1,575, based on 15x $105 in operating earnings per share (EPS) and his 2013 target remains at 1,650, based on 15x $110 in operating EPS.
S&P 500 (SPX: 1,433.32), Net Change: -8.27, % Change: -0.57%