S&P 500 tops 2000, where to next?

With Mario Draghi’s ECB threatening additional stimulus plans at the Jackson Hole stage last Friday, stock investors are pushing the envelope on valuation and have driven the S&P 500 index above 2,000 for the first time.

The basis for stronger equities is a combination of improving economic prospects resulting from future stimulus, underpinned by the powerful uplift of declining bond yields. European government bond yields are once again lower and helping drive up bond prices on this side of the Atlantic. Notably, the U.S. 10-year at 2.39% today stands 28bps lower than its average value over the past one-year. In part, the reason for resilient bond prices may be that investors are still digesting the Janet Yellen FOMC views on labor market progress as the recovery continues. 

The drive to 2,000 for stocks matched the latest year-end predictions for three more Wall Street forecasters according to the Bloomberg consensus, which collectively projects a year-end average target of 2013 (Bank of America, Citigroup and HSBC). The range of forecasts covers 1,850 to 2,300 (Wells Fargo and Stifel Nicolaus). We thought it would be interesting to consider those extremities through the lens of the IB Probability Lab, not for this year, but for December 2015. We should point out that due to forecast dividends, the equivalent forward price implied by SPDR ETF is 1954. The chances of SPY closing below 1850 by the end of 2015 is shown as 32.3% according to current options pricing. Meanwhile, the odds of a close above 2,300 are just 10.4% according to prevailing options pricing.  

Chart shows the probability profile for the December 2015 S&P 500.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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