The U.S. stock market probably hit bottom yesterday and will rebound as investors refocus on fundamentals and earnings after weeks of distraction from the European debt crisis, Oppenheimer & Co.’s Brian Belski said.
The U.S. stock market is positioned for a rally after weeks of defensive positioning and indiscriminate selling that has led to record declines, Belski, chief investment strategist at Oppenheimer in New York, said on Bloomberg Television’s “Inside Track With Deirdre Bolton and Erik Schatzker.” Investors have become overly focused on the daily news on the the Greek sovereign debt crisis and have forgotten that earnings drive stock prices, not macroeconomic news, he said.
“Earnings will surprise to the upside -- earnings estimates have been slashed too much,” Belski said. “The market’s going to get squeezed and we’re going to have a nice year-end rally.”
The Standard & Poor’s 500 Index closed under 1,100 for the first time in more than a year on Oct. 3, falling below the price range that held since August and putting the gauge within 1 percent of a bear market. It slipped as low as 1,074.77 yesterday before surging to 1,123.95. Analysts cut projections for profits next year by 2.6 percent to $110.76 a share after the S&P 500 tumbled 14 percent in the third quarter, Bloomberg Data show.
“When you see these types of fears all swelling” and “trade correlation that is very very high, that usually spells that we are at a bottom, and that is what we saw yesterday,” he said.
The Chicago Board Options Exchange S&P 500 Implied Correlation Index jumped to a record 90.28 on Sept. 30. The correlation coefficient of S&P 500 companies with the index has surged to 0.85, its highest level ever, according to data on the 50-day rolling average from Birinyi Associates Inc. in Westport, Connecticut. A correlation of 1 would mean they move in lockstep.