Recuperation of S&P 500 after a strong disruption

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By Mark Michaels on August 19, 2014 Economy, Market, S&P 500

After going through a huge geopolitical crisis, S&P 500 (^GSPC) is back in business with a new force. On Monday, stocks were propped up because of stability in Ukraine and Iraq. The S&P 500 (^GSPC) leaped ahead of the Dow (DOW Jones Global Indexes: DJI) by gaining 16 points. The Dow, however, managed to get triple-digit. The Nasdaq (^IXIC) on the other hand, rose from the 4% decline in summer and gained 14-year high.

The head of U.S. strategist at Deutsche Bank (NYSE:DB) David Bianco is of the view that geopolitical stability in the area could make S&P 500 (^GSPC) reach 2,000 points approximately. With the succession of bond yields, the trading rates of stocks are elevated. The trading range of 10-year is 2.38 percent, still below its normal trading rates. The viewpoints of some financial analysts predict the incessant instability in the market. According to them, despite the probability of mounting stocks by the end of summer, there is going to be a huge pressure on sellers in the fall. Janet Yellen, the chief of Central Bank restated that the interest rates are not expected to raise any time soon because of the disintegration in the labor force.

Stocks are expected to face precariousness during midterm elections. The focal point of big investors would be tax and similar subject matters. Moreover, the month of September is also considered the nastiest time for stock market flow. The strategists of Morgan Stanley (NYSE:MS) notified that even the off-putting earnings are reconsidered during this time. Scott Wren, the senior equity strategist at Wells Fargo Advisors (NYSE:WFC) also said that there is going to be more fluctuation in September and it is a weak period for investors.

Bianco is of the view that Low bond yields could be a source of upheaval as well as support. The interest rates will not increase and are estimated to remain below because of constant turn down of treasury yields. He further forecasted a long absence of 4 percent norm in the market.

The geopolitical volatility and economic commotion caused not only U.S Treasury yields but lowered European yields as well. Last week, an immense drop in the 10-year bund yield was observed. It cut down to 1 percent for the first time ever in history. Additionally, the flat retail during the month of July also affected the growth in the U.S.

On the other hand, earnings are expected to increase and grow around 10 percent in the view of Bianco. The second quarter saw the income jump up by 9 percent, which proved to be a bright mark for stocks. The key factor for the right kind of P/E is thus said to be long-standing interest rates. The growth rate is always slower in long-term investments but it does turn out higher in the long run.

According to Wren, the strong second quarter earnings proved a positive factor and the stock market is flowing good. The ratio of 2014 earnings is 16.7 which is at the 30 year median. Bill Stone however seems worried about lower yields and considers the weak global economy the reason for this disorder. He considers it a negative sign for stock market and its future.