S&P 500 Could Hit 1,700, but Weaker Stock Cycle Ahead
April has ended. The S&P 500 has edged higher for six straight months and is eyeing 1,600 on the chart.
We are also coming to the end of the historically best six months of the year for the stock market (November to April), according to the Stock Trader’s Almanac.
I’m not saying to exit the stock market, but you will need to be more selective and focus more on trading opportunities as we move toward the second half of the year.
With about one-third of the year behind us, the advance in the stock market so far is becoming more realistic, but it’s still somewhat elevated, based on the annualized return.
For instance, based on the current advance, the Dow is headed for a 38% gain this year. The S&P 500 is on a path to 35%, and the NASDAQ is headed to 29%. These are all excellent goals, but I doubt this will happen, which means that something else has to give as we move forward. I expect more hesitancy.
The first-quarter earnings season has been average and slightly better than expected, but the lack of revenue growth is a major concern of mine. To me, the lack of revenues implies corporate America is hurting for business, so there may be some stalling on the horizon.
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I continue to believe there are additional gains to come for the stock market; albeit, we could see a correction in the process. By year-end, I still feel the stock market will be higher.
At this point, I think the S&P 500 will finish somewhere between 1,650 and 1,700, while the Dow Jones Industrial Average could close above 15,250 by the end of the year.
Of course, a lot of what happens in the stock market depends on global risk, including the eurozone (read “Why America Will Struggle if the Eurozone Languishes”) and China, and its impact on U.S. stocks. If the eurozone continues to falter, it will impact China and, ultimately, the U.S. economy, along with the rest of the global economy.
If the U.S. economy delivers with stronger jobs growth and if corporate America can deliver with higher expected earnings in the second half of the year, the stock market will move higher.
There are a lot of assumptions toward the economy that may or may not turn out.
Given this, we could see stock selection play a more critical role as we move forward in 2013.
I advise riding the gains but also taking some profits along the way.
To be extra careful, should something negative surface and disrupt stocks, you want to make sure you have some put options in place.