S&P 500 Flat Over The Week As Investors Reflect On Prices Versus Fundamentals

The flagship large cap US index, S&P 500 (^GSPC), closed near flat over the week 0.19% lower. The index remains more than 60% higher than its cyclical low seen early this year. Naturally after such a strong run investors are torn between banking profits and leaving their equity allocation intact on the hope the bullish trend will continue. Bears, (equity pessimists) are however increasingly citing the gap between stock prices and the underlying economic fundamentals which despite improving GDP data remain patchy or weak with rising unemployment the primary example.

Elliott Wave International, the world’s largest market forecasting firm correctly predicted the 2008 crash and leading up to the banking debacle commented “Confidence has probably reached its limit. A multi-decade deceleration in the U.S. economy will soon stress debtors’ ability to pay. Total credit will contract, so bank deposits will contract, so the supply of money will contract”. Elliott Wave also accurately predicted the technical bounce which commenced in March. With a track record of success and a clear understanding of the infrastructure of the financial economy, it is interesting to note that the firm has turned bearish again.

Source: Elliott Wave

Whilst the exact timing of a retreat is near-impossible to ascertain the chances of a meaningful dip in equity prices has increased in recent weeks. At the very least investors should certainly not presume the current bullish trend will develop into a multi-year bull market.

Chart: S&P 500 Weekly to 20th November. Source: StockCharts

Subscribe by RSS Subscribe by Email