Many investors, ourselves included, find it difficult to understand why stocks have done so well lately in such a challenging economic environment and COVID-19 still an ongoing threat. We heard that question quite a bit at our annual national conference for LPL financial professionals held virtually in late August. That isn’t the only question we’ve been getting recently, so we’ve compiled our top-10 investor questions and answers.
Question #1: Can Stocks Keep Going Higher, Considering the Risks?
With the S&P 500 Index up more than 50% since the March lows and stocks pricing in an optimistic recovery in the economy and corporate profits, we believe stocks may be due for a pullback—and the drop that occurred September 3–4 may be the start of it. The S&P 500 is near our bull-case scenario of a fair-value target of more than 3,450 that we highlighted in our Midyear Outlook 2020 publication—and our base-case target of 3,300 is under review. We also expect a pickup in volatility ahead of the November election.
From a technical perspective, we may see a little more near-term upside in the 3,700 range, potentially helped by positive COVID-19 news, another fiscal stimulus package—we still expect another one of more than $1 trillion—and continued strength from stocks that have performed better in the pandemic, mostly technology stocks. On the downside, we would see technical support at around 3,200.
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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All index data from FactSet.
Please read the full Midyear Outlook 2020: The Trail to Recovery publication for additional description and disclosure.
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