4 Issues That Will Determine If The Market's Next Big Move Is Up Or Down

U.S. coronavirus cases are climbing in New York and parts of the Midwest, there is no sign a comprehensive stimulus package is coming anytime soon and U.S. economic data has started to plateau after a strong initial rebound.

Despite these negative headlines, the SPDR S&P 500 ETF Trust SPY continues to rally, leaving some investors to wonder why the market is seemingly ignoring the news cycle.

On Thursday, Sevens Report Research’s Tom Essaye said the market isn’t ignoring the headlines. It's simply assuming everything will work out for the best in the coming months.

Related Link: Fed Chair Powell On Economic Recovery: 'Still A Long Way To Go'

Key Questions: Essaye said there are four main factors that will determine the next major move the stock market makes:

• How messy/contested will the U.S. election be?
• When will the next stimulus bill be passed and how big will it be?
• Will U.S. COVID-19 cases spike as temperature drops?
• When will a vaccine be widely available?

Essaye said the bullish market momentum since the last week of September suggests investors are pricing in best-case scenarios on all four of these key questions.

Price Targets: If Republicans maintain control of the Senate, coronavirus cases don’t materially accelerate, weekly jobless claims drop toward 700,000, and Congress hints of more stimulus in 2021, Essaye said the S&P 500 could easily get back near its 2020 highs of 3,588 by year’s end.

In a worst-case scenario, Essaye said a 15% to 20% correction from current levels “would not be out of the question.”

“Point being, while stocks are off the highs of early September, they are still assuming a lot of positives given the numerous issues that will be resolved in the next five weeks,” he said.

Benzinga’s Take: The Federal Reserve and Congress have already stepped in and demonstrated they will essentially write blank checks to U.S. companies to get them through the crisis. It’s understandable for investors to assume more of the same from Washington in coming quarters, and there are few problems that an unlimited supply of financial stimulus can’t solve.