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S&P 500 reclaims 6000 – what now?
Friday’s payroll report provided the foundation for the S&P 500 to recover a key level. But where do we go from here?
S&P 500 returns to 6000
Friday’s session was yet another positive one for US markets, following the latest jobs report.
The S&P 500's recovery from the April lows continues, as it touches 6000 for the first time since late February. This leaves it just 2.4% from the record highs seen in mid-February.
I’m sure that many investors around the world will be looking at stock indices like the S&P 500 and think why they didn’t take the chance to rush back into stocks at the lows of April. That’s the problem with investing, it’s always easier with hindsight.
It is hard to remember how it felt back in April, when the shock of tariffs was still being digested. Predictions of economic Armageddon abounded, providing plenty of scary economic commentary for those that lap up such things.
But that’s in the past. Where do we go from here? That, of course, is the tricky part. It’s easy to look back at a chart and pinpoint the best moments to buy and sell, but it’s an entirely different game when you’re sitting in the moment and wondering what to do now.
For the moment, the global economy isn’t showing many signs of weakness. Friday’s US jobs report indicated a healthy economy overall, and even the China trade data, which showed a slump in Chinese exports to the US, failed to have much impact.
Markets find themselves in an odd place. There may well be more data in coming weeks that shows tariffs have had an impact. But then since mid-April most of the tariffs have been paused. Will data then start to improve next month? Investors who took a bearish view on the basis of May data may find themselves caught out by improvement in June’s figures.
Can markets keep rallying?
It is not implausible to argue that there can be more upside for stock markets in the short-term, even after the huge rally from the April low.
Investors often forget that stocks go up AND down, not up OR down. We may see some further short-term gains, and then a pullback may develop. It is not a given that markets have to retest the April lows.
Admittedly, the S&P 500 is currently trading at 23 times earnings. But the price-to-earnings (PE) ratio is not a static figure. If earnings improve, then the rating will be justified. A slump into a period of weak growth may prove to be sharply negative for stocks, but at present the data does not fully support a bearish view.
What’s happening this week?
Following on from Friday’s payroll figures will be Wednesday’s inflation data for the US, in the form of the Consumer Price Index (CPI).
Any sign of faster price increases in the US will be taken as a sign that tariffs are having an impact on the US economy. But markets have ‘looked past’ such data lately (i.e. they have ignored it) on the basis of the tariff pauses. UK employment data and trading figures from Tesco will also be worth watching.
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