What’s Next for the Market?

The closing bell just rung, marking the fourth time in five days that the S&P 500 has closed above 2000. We’re two trading days into the month, and as of yet, there is no sign of a September swoon.

Now, it may seem intuitive that a correction is in the cards. With the Dow and S&P 500 near all-time highs, plenty of talking heads are trying to call the top. We also just experienced a rather unusual summer and bucked several historical trends. The S&P 500 slid 1.5% in July, typically one of the strongest months of the year, and then it surged 3.8% in August, typically one of the weakest months of the year.

But while some in the financial media are calling for volatility this fall, I’m not buying what they’re selling. In my view, the 2,000 threshold for the S&P should be viewed as more of a launching pad than a ceiling.

Wall Street loves to fret about big round numbers, but the fact of the matter is that worldwide rates are still ultra-low, deflation is emerging and the current low interest rate environment allows Corporate America to continue borrowing and aggressively buying their respective stock back. As you have probably heard me say before, strong corporate buyback programs further bolster earnings per share, which supports higher stock prices going forward.

On top of this, time is on our side. As shown by the chart below, the historical data is compelling:

This chart looks at the S&P 500 average for all years since 1945 (blue line) compared with just the midterm election years since 1945 (gray line). As you can see, during mid-term election years the S&P 500 tends to hit its low on September 30, then rally through year end. While I have encouraged my readers to load up on stocks before Labor Day, September 30 is actually the drop-dead date to buy in before the market really resumes its uptrend through the end of the year.

The bottom line is the stock market rallied on light holiday trading volume in August, thanks to relentless stock buybacks and collapsing interest rates worldwide. And I expect the stock market to rally in the upcoming weeks as trading volume and the U.S. economy improves.


Louis Navellier

Louis Navellier

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