S&P 500 : Stagnation

(Fri, 25 Sept 2020). Famed money manager Alan B. Lancz said four factors could cause the S&P 500 Index to stagnate over the next three months.

Alan B. Lancz believes U.S.-China relations, the presidential election, stimulus delay, and the resurgence of COVID-19 presents a threat to the S&P 500. The U.S. stock market is continuing to slump as the number of virus cases in Europe and the U.S. shows no signs of slowing down. Epidemiologists anticipate cases to steadily rise throughout autumn and winter, causing jitters across the markets. The famed money manager Alan B. Lancz said four factors could cause the S&P 500 index to stagnate. In the next two to three months, the investor expects the market anxiety to increase noticeably.

Lancz pinpointed U.S.-China relations, the presidential election, stimulus delay, and COVID-19 cases’ resurgence as key factors. The S&P 500 index has dropped by 9.6% since the monthly peak on September 2. Pre-market data indicates a minor recovery following seven days of consolidation.

A Perfect Storm of Factors Start to Materialize For an S&P 500 Slump

Ranging from technicals to fundamentals, all factors that could go wrong have gone wrong for the S&P 500 index. Before the resurgence of COVID-19 in Europe, investor confidence declined after a take-profit pullback hit the U.S. markets. Tech-heavy indices, like the Nasdaq, led the U.S. stock market correction in mid-September. The pullback came after the FT unmasked SoftBank as the “Nasdaq whale.”

The investor anxiety would likely further intensify in short to medium term, as the U.S. faces growing virus cases. In the next 60 to 90 days, Lancz expects the sentiment around the S&P 500 to worsen.  The delay in the stimulus agreement has dealt a critical blow to the U.S. markets. While other major economies, like the eurozone, have recovered due to additional stimulus, the U.S. has lagged.

The stimulus could offset the growing fear towards the resurgence of the pandemic in the U.S. But strategists do not expect the stimulus stalemate to break in the near future. A strategist believes a recession might be too early to call for now.

Scientists Expect Higher Cases in Autumn

While the uncertainty around direct stimulus payments and small business aids increases, scientists project higher virus cases. Earlier this month, John Hopkins University School of Medicine epidemiologist Eili Klein said a second wave is likely.

Another prominent epidemiologist at the University of California at Irvine said “fall waves” could occur starting mid-October. Emphasizing that he expects the virus to worsen heading into Winter.

Since the World Health Organization (WHO) declared COVID-19 a pandemic, scientists warned against cold weather, potentially causing a faster spread. The concerns toward a virus resurgence, combined with the absence of stimulus and vaccines, could add additional selling pressure on the S&P 500.

The confluence of the negative fundamental factors could hurt inflated valuations in the stock market, Lancz said. For tech stocks, the predictions of prolonged market stagnation could be particularly damaging. Lancz warned that “uncertainties” will eventually cause investor confidence to dampen, “pressuring lofty valuations.”

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