Why Stocks Could Push Higher

Posted by: Ben Levisohn on August 20, 2009

Can the Standard & Poor’s 500 go higher? The Aug. 17 selloff, which saw the S&P 500 drop 2%, prompted hand-wringing about an imminent market collapse. And even S&P 500 recovers some of the losses (it’s up 2.5% since and is now back over 1,000 at this writing), investors remain focused on when stocks will finally correct. BusinessWeek’s Ben Steverman supplied five indicators to watch for signs of a market reversal. As my colleague Aaron Pressman wrote on Aug. 6, “Even as the stock market continues to push higher, investors remain doubtful.”

It’s not hard to see why. Much of the economic news seems grim. Unemployment continues to rise. Consumers are hoarding cash and are unlikely to return to their spendthrift ways. Oil is back over $70 and some economists worry it could derail a fragile recovery. And although earnings and revenues surprised to the upside this quarter, both are down over 30% from last year. No wonder investors are questioning how the market can go any higher.

But don’t be shocked if it does. Bloomberg collected estimates from eight strategists and only one, Barclay’s Barry Knapp, predicted a 2009 yearend close below 1,000 (Knapp’s prediction: 930), while JPMorgan strategist Thomas Lee predicts the S&P 500 will finish 2009 at 1,100. The average was 1,034. Linda Duessel, an equity market strategist at Federated Investors who was not included in Bloomberg’s roundup, says she wouldn’t be surprised if the S&P closed around 1,200 by the end of the year.

Perhaps that’s just a sign of experts being overly optimistic. A recent Merrill Lynch study found that 75% of money managers were optimistic about the market’s prospects, which DailyFinance’s Tim Catts seizes on as a sign of an impending selloff. Maybe it’s smart to grow cautious when the rest of the crowd turns strongly bullish (or bearish, for that matter). But in my former life as a trader, I learned that there is no “should” when it comes to how the stock market behaves. Bad news can just as easily spur a round of buying, and good news can precipitate a selloff. Markets rarely perform to a set of preconceived notions.

Keep that in mind the next time someone tells you what the market should be doing.

Bonus Question: Is the S&P 500 more likely to finish 2009 at 800 or 1200?

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Reader Comments

j

August 20, 2009 05:21 PM

I tell you why stocks could push higher. It is because someone very big is pushing them higher. This a tragic turn of events for America. Many market spikes are being driven by orders from a few large players. The question is who is doing this?

Richard Michael Abraham

August 20, 2009 09:21 PM

Mr. Levisohn, thank you for answering a perplexing question. Your statement "bad news can just as easily spur a round of buying, and good news can precipitate a selloff" says it all. You have absolutely described the stock market accurately. Still, while I agree with your assessment and comments, for years I've tried to uncover the mystery. The only conclusion I arrived at is also simple " The stock market has nothing to do with fundamentals, good or bad news, because if it was, the players, institutional investors, insiders could never make money. The only way they (the stock market) can make money is to artificially push up the market without cause, get unsuspecting investors to buy, and then, the players sell. It's all about manipulation, P.R., and that's why, in my opinion, your comments hold true. But the answer is, that's not a market, it's a business that survives on manipulation. I hope Americans catch on." Of course, the market will go up despite all the bad news. It's gone up from 6,500 to 9,300 in just five months, why not go up more, and get more unsuspecting American to invest, and ultimately lose their money to the players.
Richard Michael Abraham
The REDI Foundation
www.redii.org
info@redii.org

Richard Michael Abraham

August 20, 2009 09:27 PM

Of course the markets will artificially push higher and the players and institutional investors will push it up despite bad news, bad fundamentals. Then, once enough unsuspecting Americans pour their money in, the players will sell. That's how money is made in the stock market.
Richard Michael Abraham
The REDI Foundation
www.redii.org
info@redii.org

harry zelman

August 20, 2009 09:46 PM

Facts: unemployment continuous to rise, residential real estate values still tumbling, rentals on empty homes will hurt multi-rental units, commercial real estate down 36% (foreclosures predicted) wages sliding, (not wthistanding the fact of the rise in the minimum wage), credit card defaults rising,baby boomers not spending (savings rate 4% highest in 25 years and rising), CPI falling, 77 banks bust to date, etc, etc. My prediction; DOW below 5000 by mid 2010. Stimulus/cash for clunkers doing nothing but short term fix. Inflation 5-6% by end 2010

Richard Michael Abraham

August 20, 2009 10:59 PM

The writer J has it right in his comments. Of course stocks will push higher. But J is right, a lot of big players are pushing them higher. I agree with J "these are times of tragic events in America." The fundamentals are not there for the stock market to go from 6,500 to 9,300 in five months, and to be pushed up further. All economists agree that there can be no recovery without a housing recovery and jobs. Housing and jobs are in the tank and the stock market keeps pushing up. I think, however, judging from J's comments, Americans are catching on.

Richard Michael Abraham

August 20, 2009 11:01 PM

WHY IS BUSINESS WEEK CENSORING MY COMMENTS
The writer J has it right in his comments. Of course stocks will push higher. But J is right, a lot of big players are pushing them higher. I agree with J "these are times of tragic events in America." The fundamentals are not there for the stock market to go from 6,500 to 9,300 in five months, and to be pushed up further. All economists agree that there can be no recovery without a housing recovery and jobs. Housing and jobs are in the tank and the stock market keeps pushing up. I think, however, judging from J's comments, Americans are catching on.

shorts-r-us

August 20, 2009 11:55 PM

Their are plenty of economic commentators and strategists on entertainment business television programs saying most fund managers are vacactioning which is the reason why their is light trading. Well, I say that's hog wash! The reason why their is light trading is because those fund managers don't believe this irrational market. It's economic suicide to jump into this market and most are waiting for the pull back. Another sucker rally.

Dr Bruce Hoag

August 21, 2009 01:21 AM

Stock prices are driven by a number of different factors: consumer attitudes, world events, government policy. Notice that I didn't include company policy. Whether a stock price rises or falls during the tenure of a particular CEO has little to do with its medium- to long-term stock value.

I put my money on consumer attitudes. When the majority feel better about the economy, it will get better, because their behavior will also change to reflect that.

Bottom Line: People believe in their hearts that the worst is over. They just want to hang onto what they have until there's a bit more breathing space.

Jeffrey

August 21, 2009 04:57 AM

How could stock go higher when Americans are debt-ridden?Is Wall Street a playground for multibillionares?Could the handful multibillionaires alone push the stock higher?

Manu Sood

August 21, 2009 09:11 AM

China's second bubble is going to crash. Its stimulus package ended up in the stock markets and financed huge building projects which are now completely empty. See my site 8ak.in

CC

August 21, 2009 12:08 PM

Fishermen use "chum" to bait the water whenever they go fishing. The market being pushed artificially higher by players (manipulators) with deep pockets is nothing more than "chum" for the unsuspecting. This is one boat i don't mind missing!

SHAUKAT

August 21, 2009 12:14 PM

STOCK EXCHANGE IS VERY DIFFERENT GAME IT PLAY WITH THE MINED OF (SO CALLED) INVESTOR THERE ARE BIG PLAYER IN THE MARKETS SO THEY DO WHAT THEY WANT TO DO IT IS HARD TO KNOW WHAT THEY CAN DO NEXT BUT ONE THINK IS SURE THAT MARKET WILL NEVER STOP IT WILL GO UP THAN GO DOWN THAN AGAIN GO DOWN AND DOWN TO UP AND UP AND DOWN AND UP IT IS DIFFERENT GAME BUT ONE THING MUST BE REMEMBER THAT LESS PEOPLE WIN MORE TO LOSS BECAUSE THE SOME ONE WINING ON PRICE OF MANY LOSERS

Bob L

August 22, 2009 12:47 AM

Sure the market will go up, followed by the price of oil, followed by naive investors, followed by inflation, followed by falling profits, folowed by a bear market, followed by investor losses, followed by the same people who made money the last ime making more money, followed by the same people who lost money the last time losing what they have left.

Guzzo

August 23, 2009 11:26 AM

"Keep that in mind the next time someone tells you what the market should be doing."

http://www.businessweek.com/investing/insights/blog/archives/2008/09/stocks_crash_bu.html

buzhidao

August 24, 2009 02:43 AM

I think you are right.

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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben Steverman focus on matters great and small for investors, from the views of a hot fund manager to an explanation of the latest products devised by Wall Street’s rocket scientists. Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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