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S&P 500 Supported on Several Fronts

Stock-Markets / Stock Markets 2016 Aug 31, 2016 - 02:11 PM GMT

By: Richard_Cox


The last year saw a host of conflicting news events across the globe that affected the entire financial market.  The S&P 500 index was no exception. During this period, the S&P moved from 1,810 to 2,180 registering gains of over 20% in the process. Despite weakening economic data and building uncertainties in many global economies, the S&P 500 still managed to outperform it contemporaries due mainly to stronger domestic economic reports in the US.

Economic Factors

Many factors that influenced valuations in the S&P 500 over the last year.  We saw the international oil prices hitting lows of $27 per barrel in December 2015. At that point, many were of the opinion that it would slide even further and that led to gains in the S&P.  Even when oil prices subsequently rebounded and reached $50 per barrel, the effect was marginal and the S&P was able to continue with its previous momentum.

Adding to the bullish favor is the current low-interest rate environment, as the most recent increase in interest rates at the Federal Reserve in December of last year was only 0.25%.  This was seen favorably by the market and S&P reacted sharply to post a sharp short-term gains. These events support the outlook for structured investment programs, one of which is outlined in this betterment review written by Investment Zen.  It is important to make proper comparisons of these programs if you are an investor that assumes a long-term positioning perspective.

When we look market performance over the last year, we can see that US GDP growth posted at 1.1%.  This was higher than the previous year and this improvement came with a decline in the inflation rate to 0.8%.  This was lower than the previous year and it adds another supportive factor for S&P 500 bulls.

Potential for Rate Hikes

There are rumors that Federal Reserve is seriously considering another interest rate hike over the next few quarters and this delayed response has been accepted favorably by those trading in the S&P 500.  The Fed stance is viewed as supportive and 301 companies included in the S&P were closing the period at the 52-week highs.  Markets tend to be positively into the beginning of a year, so there is little reason to believe that we will see significant declines into January.

At this stage many analysts have argued that the worst is behind us in terms of the underlying trends.  In March of this year, we saw a weakening in momentum for the S&P 500 as upward movements from the previous month could not be sustained.  Disappointing news and US economic data depressed the US Dollar and resulted in wavered stock movements.

This was followed by the Brexit vote in UK, which cemented the decision to leave the EU.  So far, we have yet to quantify the adverse impact that will be seen in US companies as a result of these changes but we will likely see reduced sales and increased costs.  At least 10% of the S&P companies are expected to be negatively influenced by this somewhat unanticipated change in the global infrastructure. The next day following the verdict S&P saw sharply lower stock valuations and it took a few days to stage a recovery.

Rallying From The Lows

Regional revenues for S&P companies show some differences, as roughly 8% of annual revenues come from Europe while Britain contributes much less at a 1.9% share. It may not look significant but the companies included in the S&P have already started feeling the bite and this is expected to worsen in the future. Stock analysts have suggested that out of the 63 S&P companies that posted conference calls since June 2016, roughly 50 have discussed the Brexit situation with caution and concern. Investors in the S&P 500 will continue watching these factors over the coming quarters.

By Richard Cox

© 2016 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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