Less than six trading days later, the S&P 500 has rallied more than 7% in a straight line and is now threatening to break resistance between 1990 and 2000.
With moves like that, it’s normal for even the most seasoned advisor to feel lost with regards to what’s driving this market and whether the news and resulting price action is just random noise, or a bearish or bullish game changer.
Since this correction started, we’ve found that the only way to cut through all the volatility and market noise is to monitor:
1) All asset classes,
2) Economic data, and
3) Central banks comments each and every trading day.
But what really drives stock prices? Earnings…
The answer to that question will likely determine whether stocks can get back to flat or potentially test the August lows again.
This is vitally important to client portfolios because if full year S&P 500 2016 EPS drop to $120, as Goldman Sachs said last week they think they will, then the S&P 500 could be as much as 10% overvalued at current levels.
Fundamental value for the S&P 500 is depending on whether 2016 EPS are $125 or $120 (most people think 2016 EPS will fall in that range).
Source: Dewey Knows