Home » The S&P 500’s Rise to 3,000 Is On as Stock Ready For Second Half 2018 Melt-up

The S&P 500's Rise to 3,000 Is On as Stock Ready For Second Half 2018 Melt-up

The S&P 500’s Rise to 3,000 Is On as Stock Ready For Second Half 2018 Melt-up



The S&P 500’s Rise to 3,000 Is On as Stock Ready For Second Half 2018 Melt-up

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The week of July 16 may prove to be pivotal in a couple of different ways, as earnings move into high gear, and with the S&P 500 breaking out late last week, we will need momentum to continue.

A Rise to 3,000

The run to 3,000 may be on for the S&P 500 now that resistance around 2,794 has been cleared, and I will show you on a couple of different charts why that is.

The S&P 500 was able to clear resistance at 2,794 and was then able to stay above that break out successfully.

S&P 500

The chart also shows there is an unfilled gap in the S&P chart up to 2,850, and that may very well be the next level the index will rise to in the coming weeks/months.

sp500

That puts us a path 3,020 by the start of September.

sp500

Fundamentals

Is it an aggressive call on my part? Probably. But anyone that has been reading me long enough knows I have been looking for the S&P 500 to rise to 3,000 this year since the late fall of  2017. (See:  The S&P 500 Will Rise By More Than 15% to 3,100 In 2018)

The S&P 500 is currently trading around 17 times 2019 earnings estimates, which is still low enough for further multiple expansion, and that too is supportive of an S&P 500 that has additional room to rise in the coming months.

Economy

On many fronts, I believe there are plenty of reasons to remain bullish on the market. Plus the US economy continues to stay strong, with GDPNow tracking the second-quarter US growth at 3.9 percent.

Jobs

Also, the unemployment rate is likely to stay around 4 percent, if not rise in the coming month. Yes, I said a rise in the following months. I have often said that workers will come back into the labor force, and the number of jobs being created will be unable to offset the return of the workers not in the labor force. We saw that play out in the last June report.

With only 102,000 jobs created in the Household data, there were not enough to offset the 413,000 people that re-entered the labor force, and the 188,000 that entered the total labor force population. Thus the number of unemployed rose by 499,000.  In fact, as more people that are currently not in the labor force, move back into the labor force, the labor participation rate should now gradually start rising as well.

It is one major issue of the survey, in that people that have stopped looking for work are no longer counted as unemployed. So they are moved into the “not in the labor force” pool, which has swelled to about 95 million people.

Inflation

I don’t think we are shocked either by the recent rise in inflation, as we have noted many, many times how the price of Oil and the PPI are so tightly correlated.

ppi

But when looking at other essential commodities such as copper, thing look very different. In fact, copper prices have actually been breaking down.

copper

While metals like Platinum are at its lowest price since 2008!.

platinium

While the pace of oil’s rise has slowed materially, and to be honest I still think the upside in oil prices is limited from here.

oil

Meanwhile, the price of soybeans has collapsed.

soy

The same with Cattle

cattle

The Fed May Be Done in 2018

While the job market continues to see the impacts of people coming back into the labor force, wage pressure should remain low, and unemployment rates will likely remain stable or rise. Inflationary pressure appears to be anything but run away, and with the pace of oil’s rise slowing, while many vital commodity prices are falling. It makes it hard to see the Fed tightening two more times in 2018, let alone one.  (See: Why The S&P 500 Will Rise To 3,000, and The Fed Has Only One More Hike)

For now, I’m willing to stick with my earlier call that the Fed is likely done raising rates in 2018, and that will be all the market needs to be unleashed in the second half of the year.

Good luck this week.

-Mike

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