April 13, 2020
Valuation: Market participants typically begin using forward-year SPX EPS estimates around the middle of the year, but that process may begin sooner given current circumstances. The 2021 SPX EPS estimate is now ~$172 but expected to change as we get into Q1 earnings season. The forward multiple seems easier to estimate and we continue to think 17-18x is conservative given sub-1% bond yields. At this point, it seems acceptable to use an 18x multiple on ~$165 to make an upside valuation case for ~2970. Two sell-side strategists adjusted their 2020 S&P 500 forecasts this morning with one taking their year-end target to 3000 from 2700 and the other removing their downside target of 2000 based on sufficient policy support.
Chartist: The S&P 500 (SPX) has entered another easy-to-identify technical resistance zone of 2750-2840 and showing early signs of price trend deceleration particularly in cyclically-sensitive sectors. The SPX will continue to closely track Covid-19 headlines, but a peak in case counts now seems mostly priced-in. The near-term opportunity to break through resistance now follows plans to reopen parts of the economy, treatment advances and improving vaccine expectations. Regardless, it seems most likely the SPX will require some time to build a technical base before moving higher. And the range for that base could be fairly wide with support around ~2430.