This 2009 Playbook Predicts S&P 500 Is Headed To 3,800

The trading action in the SPDR S&P 500 ETF Trust SPY since the March lows has been surprising to many investors. According to DataTrek Research co-founder Nicholas Colas, the stock market has performed mostly in-line with expectations based on his 2009 playbook.

Throughout the year, Colas has been tracking the 2020 S&P 500 trading action and comparing it to the stages of the 2008 sell-off and the 2009 market recovery from the financial crisis.

Much of the 2020 bounce off the March lows was in-line with how the market recovered in 2009, and Colas said the S&P 500 is only two points ahead of 2009 pace at exactly 105 days following the March lows in both 2009 and 2020.

Colas said the 2009 and 2020 recoveries are “eerily close,” which bodes well for investors throughout the rest of the year. If the S&P 500 continues on its 2009 trajectory, Colas said it will finish the year at roughly 3,763, about 11% above current levels.

Path To S&P 3,800: But after already rallying more than 50% off the March lows, Colas said at least three things need to happen to get the S&P 500 near the 3,800 level by the end of 2020.

• First, tech stocks, including Alphabet Inc GOOG GOOGL, Amazon.com, Inc. AMZN and Facebook, Inc. FB, will need to continue to perform well. Other sectors would not be able to make up for a sell-ff in tech given how large its weighting has become.
• Second, 2021 S&P 500 earnings estimates will need to continue to rise to keep valuations reasonable.
• Finally, Colas said the November U.S. presidential election needs to have a decisive victory for one candidate or the other given markets tend to perform very poorly during periods of political uncertainty.

“We remain positive on US equities but are fully aware that the next 10% on the S&P will likely be a more difficult slog than the last 50%,” Colas said.

Benzinga’s Take: The huge rebound in the S&P 500 since March has happened at a record pace at times. So it’s comforting to know just how close this year’s recovery has been to 2009’s and how well the market performed in the second half of 2009 and the years that followed.

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