Despite Recent Rout, This Analyst Says The S&P 500 Could Still End 2018 Near 3,000

After ending the Sept. 20 session at an all-time closing high of 2,930.75, the S&P 500 Index has pulled back by about 7 percent as worries concerning the midterm elections, the Sino-U.S. trade standoff and a rising rate environment push traders to the defensive.

But redemption is likely for the market as it enters a seasonally strong period, according to LPL Research's Chief Investment Strategist John Lynch.

Although the analyst concedes there is likely to be volatility around the Nov. 6 midterms and the still-unresolved trade tiff, Lynch forecast the year-end fair value of the S&P 500 Index at 2,900-3,000, suggesting a potential gain of 8.5-12.2 percent.

The actual gains could be even higher, as the multiple is applied on a conservative S&P 500 earnings per share estimate of $155, Lynch said in a Monday note. 

Strong Performance In An Uncertain Climate 

Lynch's optimism holds especially true as the earnings season kicks off with a strong start, buoyed by a strong domestic economy and healthy manufacturing sector, he said. 

Pre-announcements and estimate revision points to another quarter of better-than-expected results, according to LPL Research. 

With about one-fifth of the S&P 500 earnings released so far, year-over-year earnings growth in S&P 500 companies is up 22 percent and revenue has risen 7.3 percent, Lynch said.

Although the estimates represent a slowdown from the 22.3-percent and 9.5-percent EPS and revenue growth, respectively, that were seen in the second quarter, the figures are nevertheless solid given the geopolitical uncertainty at hand, he said. 

LPL Research named three pressures weighing on profit margins: tariffs, gradually rising borrowing costs, and wage pressure. The firm also expressed concerns over a likely peaking in earnings growth, Sino-U.S. trade tensions and slowing growth in Europe.

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