S&P 500 Primed To Cross 4,200 Today, Says Analyst — But Could A 700-Point Drop Be Coming?

Despite the fed rate worries, economic uncertainties and the precipitating banking crisis, the S&P 500 Index has held up fairly well in recent sessions. Fundstrat Global Advisors' Managing Partner and Head of Research Tom Lee shared his near-term market outlook on Twitter late Sunday.

Pessimists, Neutral Players Call For Crash: Lee’s comments came while discussing the results of a six-question poll he ran last week, with the possibility of the S&P 500 dropping further before it hits the bottom asked as one of the questions. Lee clarified that he sought responses from bears and those sitting on the sidelines.

A majority (47.4%) of the respondents said they expected the broader gauge to retest its Oct. 2022 lows of around 3,500.

Here's what the majority said for the remainder of the questions:

• The fundamental factor behind the caution was the Fed's rate hikes, with 49.5% of the respondents saying "Fed gonna break something."
• About 40.3% of the respondents said price is the issue and not the time for the bear market to play out.
• On the fundamental factors that can change their minds, a majority of respondents chose the "all of the above" option that included Fed pivot/cuts, the recession ending and earnings inflecting higher.
• About 45.7% of the respondents said, to have them change their minds as a bear, there has to be a market crash.
• About 41.6% of the respondents said they were invested in FAANGs or techs currently.

Summarizing the findings, Lee said investors think the index could bottom below 3,500, the Fed is the key caution factor and the Fed pivot is the key catalyst.

2/
Summary of those "bearish" (based on poll):

– S&P 500 bottom <3,500 (64%)
– key caution factor Fed (50%), then inflation (21%)
– Only 35% see bottom before YE23
– Fed pivot key positive catalyst (31%)
– New highs needed to convince bull underway (26%)

— Thomas (Tom) Lee (not the drummer) FSInsight (@fundstrat) May 1, 2023

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Is This Time Different? Lee noted that the S&P 500 Index has not hit a new low for over 135 days. As opposed to this, in the 2000-2003 period, out of the five bear rallies, the longest lasted more than 121 days. None of the four bear rallies during the 2007-2009 Great Recession lasted more than 44 days, he said.

The analyst also noted that none of the bear-market rallies in 2000-2003 and 2007-09 saw the index crossing above the 200-day moving average. In the current rally, the index was above the 200-week moving average for more than 25 weeks, he added.

5/
Does the fact that S&P 500 >135 days without a new low?

– in 2000-2003, of 5 "bear rallies" longest lasted >121 days
– 2007-2009 bear, of 4 "bear rallies", none lasted >44 days
– None of rallies crossed above 200-week moving average

Current rally 25 weeks >200 week mavg pic.twitter.com/ZA5OznE2gG

— Thomas (Tom) Lee (not the drummer) FSInsight (@fundstrat) May 1, 2023

“The fact this rally has exceeded 135 days and has stated > 25 weeks above the 200-week moving average is almost definitive proof a new bull market started 10/12/22,” Lee said.

The Fundstrat analyst also reminded of his prediction in the firm's 2023 outlook for more than 20% gains, led by FAANGs and Tesla, Inc. TSLA. FAANGs is the acronym used to refer to Meta Platforms, Inc. META, Apple, Inc. AAPL, Amazon, Inc. AMZN, Netflix, Inc. NFLX and Alphabet, Inc. GOOGL GOOG

The year 2023 seems to be tracking a "textbook post-inflation bear market playbook," he said.

Responding to a question, Lee suggested that the S&P 500 Index could top 4,200 on Monday. Separately, the analyst said the index will close above 4,200 but did not rule out some backfilling.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index, ended Friday’s session at $415.93, up 0.85%, according to Benzinga Pro data.

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