2100 has been a key resistance level for the U.S. S&P 500. We believe the market lacks a near-term catalyst for a breakout above that level. Conversely, several factors risk pulling the market down.
It is unlikely that economic data between now and the next FOMC meeting (on December 15-16) will be poor enough for the Fed to back off from raising rates; there remains one payroll report and inflation data. Equity prices have been steady over the past few weeks, i.e. since it has become apparent that the Fed’s default position is to raise rates at the next meeting.
But still, at nearly 16.5 times forward earnings, stocks are priced for a very good earnings/economic outcome. We have highlighted frequently in Daily Insights that we view most of the risks to the downside. Dollar strength represents monetary tightening and is a headwind for many S&P companies. Corporate selling prices are weakening, putting downward pressure on profit margins. EM risks remain elevated. We are on high alert for more severe corporate bond fallout, especially in the energy space.
In sum, it is not a recipe for broad market capital appreciation. The Fed may not be the trigger, but we nonetheless remain defensive and focused on minimizing risk.