S&P 500 FUNDAMENTAL FORECAST: BULLISH
- The S&P 500[1] index may weather through near-term headwinds and aim for higher levels
- So far in the earnings season, over 80% of the index’s constituents have beaten estimates
- US election and slower recovery are the key risks amid a second viral wave
S&P 500 Index Outlook:
The S&P 500 index retreated from a six-week high since the start of the earnings season, in which big American banks delivered strong Q3 results. US banks were benefiting from lower loan-loss provisions and higher trading income amid improved market conditions. More than 80% of the S&P 500 companies, which have released results so far, have smashed analysts’ forecasts. This may set an upbeat tone for the rest of the earnings season.
This week, around 17% of the S&P 500 companies will unfold their Q3 results, include Procter & Gamble, Netflix, Abbott, Coca-Cola, AT&T, American Airlines, Intel and American Express.
The second US fiscal stimulus package remains a key focus too. As investors count down for the US presidential election, the likelihood for a program to be approved before 3rd November appears to be thin. This assumption, however, may not totally deter investors from risk-taking as recent polls point to a strong lead for Joe Biden over Donald Trump, which may pave the way for a Democratic-led relief package that markets seem to favor. A ‘blue wave’ election outcome could mean Democrats in charge of the White House, Senate and House, removing hurdles to pass substantial fiscal support for the US economy.
S&P 500 Index vs. Trailing 12 month EPS (2015-2020)
Source: Bloomberg, DailyFX
Some near-term headwinds include election risks and a ‘second wave’ of coronavirus in parts of the world, which could dampen a fragile recovery. US jobs
