Stocks surged post-election, but sudden setback not a surprise, says CFRA
Nasdaq, S&P 500 green, Dow slightly red
Energy leads S&P sectors gainers; Industrials, Healthcare slip
Dollar down; bitcoin up >1%; gold up ~2%; crude up ~3%
U.S. 10-Year Treasury yield edges down to ~4.42%
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STOCKS SURGED POST-ELECTION, BUT SUDDEN SETBACK NOT A SURPRISE, SAYS CFRA
After a strong post-election rally, the S&P 500 index .SPX has retreated just over 2% from its November 11 record intraday high at 6,017.31. The benchmark index is now around 5,885 and according to Sam Stovall, CFRA's chief investment strategist, this "setback shouldn’t have come as a surprise, since stock prices had indeed gotten ahead of themselves on comparative optimism that 2024 would resemble 2016."
Stovall recounts that after the 2016 vote was in, the S&P 500 gained more than 6% between election day and inauguration day, and another 5% through President Trump’s first 100 days in office, implying current S&P 500 index targets of 6,141 and 6,448, respectively.
However, he points out that valuations may have been an issue this time around given that in 2016, the S&P 500 traded at 16x its forward 12-month EPS, according to S&P Capital IQ consensus estimates. Recently, he says the S&P 500 traded at a forward P/E of 23x, or 40% above its 20-year average.
Thus, after a "needed easing of euphoria," Stovall thinks stocks will resume their traditional post-election advance.
Additionally, he believes that Powell’s comments last Thursday, that there's no need to rush rate cuts, "should have been interpreted as confidence that the economy remains resilient, a recession is not imminent, and that after a December rate cut, a quarterly rate-reduction pace in 2025 should be anticipated."
(Terence Gabriel)
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