A monthlong gain in the Standard & Poor’s 500 Index has left bulls and bears at a “a perfect standoff,” Oppenheimer & Co.’s Worth wrote in a note yesterday. It’s a “coin toss” as to whether the index will increase or retreat, he said.
Worth’s ambivalence highlights the challenge for investors as earnings rise at the fastest rate in 22 years even amid signs the economy is faltering. The S&P 500 rallied as much as 9.2 percent from its Dec. 31 close this year and dropped as much as 8.3 percent. It climbed 0.6 percent yesterday to 1,127.79, up 1.1 percent for 2010.
“This is the elegant, exquisite moment that you’ll see a handful of in your lifetime,” Worth said in an interview. “Anyone who says to you, ‘I know where it’s going,’ they’re lying to themselves and they’re lying to their clients.”
After gaining 11 percent from the 2010 intraday low on July 1, the S&P 500 ended last week at 1,121.64, close to its average level during the prior 150 days, according to data compiled by Oppenheimer and Bloomberg. The benchmark index approached its June 21 intraday high of 1,131.23 for the third time this month. While surpassing the June peak may herald more gains, breaking below the Aug. 6 intraday low of 1,107.17 would mean the rally since July 2 may be at risk of ending, according to Worth.
Worth uses the 150-day average to gauge a bull or bear market. Using this tool, he called the start of the U.S. bear market on Nov. 9, 2007, one month after the S&P 500 peaked at a record high of 1,565.15.
The S&P 500 fell 12 percent in the second quarter, trimming its gain since March 2009 to 52 percent, on concern economic growth in the U.S. and China is slowing. The index has gained 9.4 percent since then.
“The market is trying to figure out are we on a cusp of an important intermediate advance, or decline?” Worth said. “From the things I spend time looking at, it’s literally neither fish nor fowl.”
Cash at S&P 500 companies has risen six straight quarters to $836.8 billion as executives fired workers and reduced capital spending, according to S&P. Earnings at the same companies will increase 35 percent in 2010, the biggest annual gain since 1988, more than 8,000 analyst estimates compiled by Bloomberg show.
Of the 443 companies in the S&P 500 that reported results through Aug. 6, 76 percent exceeded analysts’ forecasts, data compiled by Bloomberg show. The rate marks the fifth straight quarter in which more than 70 percent of companies have topped projections, the data show.
While income is rising faster than predicted, the economy has showed signs of slowing. Private employers added 71,000 workers in July, down from this year’s high of 241,000 in April, the Labor Department said last week. The number of contracts to purchase previously owned houses unexpectedly fell in June, figures from the National Association of Realtors showed.
“It’s a standoff between those who have a view that’s constructive and bullish, and those who say ‘No, something is not right,’” Worth said. “We’re probably going to be here longer than it’s almost bearable.”