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Is the stock market ready for another nose dive in a later year?



The stock market performance this year has been nothing short of spectacular.

S&P 500 & # 39; s

SPX, + 0.74%

almost 21% advance so far this year marks the best performance for the index through July 26 since 1997, according to Dow Jones Market Data, and the Nasdaq Composite

COMP, + 1.11%

who had an even better run, up 25.5% over the year. Dow Jones industrial average

DJIA, + 0.19%

meanwhile, was not far behind; That's up 16.5% since its inception in 2019.

But with the S & 500 already sitting comfortably above the strategic goals of many strategists, some analysts and investors are approaching the rest of the year as rising valuations, political uncertainty and financial weakness Abroad raises questions about how long the stock market can keep up at its astonishing pace.

"I thought 2950 would be a cap for this year, and we're already higher than that," Bob Doll, chief equity strategist and senior portfolio manager at Nuveen, told MarketWatch and predicted "the market will go nowhere" in other half.

"Price-to-earnings have gone from 13 to 17.4, and earnings estimates are still too high for next year," Doll said, adding that higher valuations and future reductions in earnings estimates will be the headwind for equities in it. the other half, along with a Federal Reserve policy that he predicts, will be more hawkish than the market expects, unless a more damaging economic downturn materializes.

While GDP growth in the second quarter reflects a declining but healthy US economy, data abroad is exacerbating the decline, which is likely to affect US markets in some way. Mike O & # 39; Rourke, chief strategist for JonesTrading, wrote in a note to clients that Thursday's comment from European Central Bank President Mario Draghi on the economic outlook in Europe – which he said was "getting worse and worse" – helped dampen investor enthusiasm in over a week that would otherwise see markets move higher with better-than-expected earnings.

"It was [Draghi’s] honesty that led to markets [Thursday]," O'Rourke wrote. “PMI readings in key economies have been at or hovered near the recession level throughout the year. In the first quarter, German GDP grew by 0.4% and Italian GDP grew by 0.1%. These two economies account for 44% of euro area GDP, and the data have not shown much improvement in the second quarter. "

The US economy has so far remained unexpected by a weakening European economy, but will at least reduce growth abroad to affect the US stock market through a stronger dollar.

"Dollar strength is the headwind for equities, but the market seems to be giving it a pass in income reports," said Tom Martin, senior portfolio manager at Global Investments. “They place more emphasis on constant currency than the dollar. It does so for a while until it doesn't, and if you get the feeling that the dollar is going to be a problem on a persistent basis, the market will adapt. "

That said, there is no reason why stocks may not continue to deliver healthy returns, simply because their valuation has risen so impressively in the first seven months of the year. During 2013, the S&P 500 advanced 29.6% (for the best one-year performance since 1997), which corresponds to the results in 2013 this year would require a further 7.4% advance from here on out.

Meanwhile, several bullish investors argue that the time of last year's nearly 20% correction – which contributes to S & P's decline of as much as 6.2% – has skewed calendar-year performance for equities in 2018 and 2019, skewed last year's downward performance and make this year's gains more impressive than they might otherwise be.

"Year in day out is a good run, but from a longer perspective, stocks haven't done much in the last 18 months," Aaron Anderson, senior vice president for research at Fisher Investments, told MarketWatch.

"The markets are flat from 2018, small caps are still well below the top, [and] It's not as if the strong race this year reflects an excessive amount of optimism," he added. "We would say there is plenty of room to run."

The Federal Reserve's interest rate setting committee will close a two-day meeting on Wednesday, July 31, and while a quarter-point interest rate cut is expected, the accompanying statement and press conference from Chairman Jerome Powell may provide more clarity on the future pace of interest rate rises – with markets that now prices in two to three cuts this year and two to the next. A rattled decline or confirmation of expectations is likely to play a key role in investor sentiment in the coming weeks.

Other data on print include a new reading of the PCE inflation index, the Fed's preferred target of price growth; the latest treatment of the Case-Shiller home price index; and the National Association of Realtors pending home sales index, all due Tuesday.

Along with the Fed announcement, Wednesday, a new reading of the employment cost index and ADP's estimate for private sector job growth will be issued. Thursday will include a print of the ISM index for July, as well as an estimate of construction costs in June.

Friday contains the important non-farm report, as well as consumer sentiment data in July and factory orders for June.

The week will also include another heavy round of business income reports, with Dow components Apple Inc.

AAPL, + 0.35%

Procter & Gamble Co.

PG, + 1.74%

and Pfizer Inc. [19659026] PFE, + 0.98%

who gave the results on Tuesday, together with Mastercard Inc.

MA, + 0.97%

and Merck & Co.

MRK, -0.39%

.

Wednesday will see second quarter revenue reports from Qualcomm Inc. and General Electric Co.

GE, + 0.77%

and one day later Dow constituent Verizon Communications Inc.

VZ, + 1.28%

is set to announce results, like Cigna Corp.

CI, + 0.45%

General Motors Co.

GM, + 0.05%

and DuPont de Nemours Inc.

DD, + 0.08%

.

Friday contains quarterly results reporting by Exxon Mobil Corp.

XOM, -0.16%

Chevron Corp.

CHV, -1.03%

and Burger King parents Restaurant Brands International Inc.

QSR, + 1.50%

.


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