The Tell: Stock market ‘on cusp’ of important test: Watch this S&P 500 level if 2022 low gives way, says RBC

by | Sep 26, 2022 | Stock Market

The S&P 500 is approaching an important level to watch beyond its 2022 low, as investors anticipate a spike in jobless claims amid recession fears and soured sentiment in the U.S. stock market, according to an RBC Capital Markets note.  “We think stocks are on the cusp of an important test,” said Lori Calvasina, head of U.S. equity strategy at RBC, in a research note Sunday. “While the June lows now seem unlikely to hold, if the S&P 500
experiences its typical recession drawdown of 27%, the index will fall to 3,501.”

In Calvasina’s view, the 3,500 level is important as it’s “the point at which a median recession would be priced in,” perhaps drawing in some investors to buy the dip. That’s because at that level, based on RBC’s “below-consensus” earnings-per-share forecast of $212 for 2023, the index’s forward price-to-earnings ratio would fall below average if it hits 3,561, according to Calvasina. “That may open the door for bargain hunters, though fundamental catalysts for a move higher – other than the midterms – admittedly are hard to identify,” she said.  With the Federal Reserve aggressively raising interest rates in an effort to tame stubbornly high inflation, investors have been focused on what “higher-for-longer rates” might mean for stock-market valuations, according to RBC.  RBC expects the S&P 500 may end the year with a price-to-earnings multiple of 16.35x, based on 2022 expectations for infla …

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