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Why The S&P 500 Will Rise To 3,000, and The Fed Has Only One More Hike

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The S&P 500 may be nearing a pretty big breakout soon. The chart of the S&P 500 looks like a giant ascending triangle, and the breakout would likely occur sometime before the end of May. Basically, at this point, rise above 2,730 would signal the breakout along the downtrend, which has been in place since late January.

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Strong Earnings

Again, strong earnings will continue to stoke the stock market’s rise, and I still think the S&P 500 will rise to 3,000 in 2018. Yeah, crazy! I know. But listen to these stats, from Dow Jones S&P Indices:

Almost 53 percent of the companies in S&P 500 have reported results so far, and about 78 percent have beat earnings estimates, with only 16 percent missing. In the first quarter of 2017, with the companies reporting results, only 74 percent beat estimates, with 19 percent missing. Meanwhile, revenues are up nearly 9.4 percent vs. the same period a year ago.

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A Rise To 3,000

Estimates are calling for FY 2018 earnings of $154.23 per share, and with the S&P 500 currently at 2,648, we are trading at 17 times 2018 earnings, and 15.6 times 2019 earnings estimates of $169.54. And so what multiple would the S&P 500 be at should it rise to 3,000? Just 17.7 times 2019 estimates, far from nosebleed levels.

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Inflation

Additionally, the inflation and increasing rate narrative I think it is starting to lose steam, trimmed mean PCE today came in at 1.77 percent in March vs. a year ago. I continue to believe this is the best measure of inflation on the traditional measures, as it throws out the top and bottom outliers. Meanwhile, the velocity of MZM is my all-time favorite predictor of future inflation and yields, and it continues to flatten out at 1.3. Does the MZM chart look familiar?

It should remind you of a chart of 10-year interest rates.

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Falling Rates

Based on the data above, and these technical charts below, I continue to believe that the 10-year will revert to the uptrend, around 2.6 percent.

Then there are this charts for the 30-year yield.

and this one for the 10-year.

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One More Rate Hike

The moment of truth? I don’t know about that, because I’d be shocked if rates continue to rise. In fact, I think the Fed may only raise rates one more time this year.

There I finally said it, I have been thinking about this a lot lately, I have been on the fence about saying it, but there you go.

One more rate hike in 2018, making a total of only 2.

-Mike

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Tags: #earnings #sp500 #yields #inflations #rates