Five Reasons We Remain Optimistic on Equities

Key Takeaways

  • Favorable seasonals should provide a tailwind
  • The market may be misinterpreting mega earnings
  • Contrarian catalyst as sentiment has turned bearish

Much like Halloween, it has been a scary time for investors – with the S&P 500 nearly entering correction territory (a decline of >10%), the NASDAQ down 12% from its recent highs, and the percentage of stocks below their 200-day moving average (~27%) at YTD lows. Equity pullbacks are never comfortable, but it is important to put them in perspective. The S&P 500 typically experiences three to four 5% declines a year – one of which is usually 10% or more – so the recent pullback is not unusual. Additionally, our directional views are based on where the equity market is relative to our fair-value target. When the equity market soared above our year-end target of 4,400 in July, we became more cautious. Fast forward to today, and the recent declines now provide S&P 500 upside of 6% and 12% into our year-end (4,400) and 12-month (4,650) targets, respectively. Below are five reasons we remain optimistic on equities.