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The S&P 500 closed at 5222 on Friday. It is now trading at 0.6% below the all-time high of 5254. We may see a short squeeze once the S&P 500 goes above the all-time high.
My best-case scenario, based on fundamental analysis, suggests that we may see a 20.5% upside in the S&P 500, ending the year at 5750, with an EPS of 250 and a PE ratio at 23x.
Based on technical analysis, I see that the S&P 500 may potentially take a breather at 5556, and 6118 based on Fibonacci Extension. While a 344-point increase to reach 5556 may seem like a lot, it is only a 6% increase from the current price of 5222.
The recent 5.46% correction from 5254 to 4967 may appear too shallow for most investors. However, I would like to argue that the correction may have been completed in certain sectors such as semiconductors.
For example, the Philadelphia Semiconductor Index corrected nearly 17%. Nvidia $NVIDIA Corp(NVDA)$ , AMD $Advanced Micro Devices(AMD)$ , SMCI $SUPER MICRO COMPUTER INC(SMCI)$ , and ARM $ARM Holdings Ltd(ARM)$ have incurred large drawdowns of -19.79%, -31.75%, -39.93%, -41.47%, respectively, this year.
I think the S&P 500 may not see a deep correction this year because certain sectors may take turns to correct. For example, the semiconductor sector corrects first, followed by the financial sector, consumer discretionary, energy sector, and so on. But they may not all correct at the same time. This is why we may not see a deep correction in the S&P 500. This is called a “rolling correction” or “rotational correction,” and hence investo should not expect their favorite stock to incur a deep correction later this year, as the said stock may have completed its maximum drawdown for the year.
We remain mid and long-term constructive on the S&P 500. The deeper correction in the S&P 500 may only occur between September and October based on US election year seasonality.
Investment Strategy: Your beloved stocks may appear toppish to you, but you may consider investing in S&P 500 ETFs (SPY $SPDR S&P 500 ETF Trust(SPY)$ , IVV $iShares Core S&P 500 ETF(IVV)$ , VOO $Vanguard S&P 500 ETF(VOO)$ ) and Nasdaq-100 (QQQ $Invesco QQQ(QQQ)$ ) to at least capture market returns first. When your beloved stocks undergo corrections later, you may slowly divest the ETFs and reallocate the sales proceeds into your beloved stocks. The benefit of this strategy is that if your beloved stocks do not fall in price, your existing ETF holdings should at least help you capture some market returns.
You could also find my previous articles on S&P 500 here, here, here and here.
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