(Bloomberg) -- U.S. stocks are fighting off excessive investor pessimism, which has set the bar quite low for good-news rallies, according to BTIG LLC.
“We’re halfway between the highs of last September and the lows around Christmas Day, and our view is that you’re much more likely to test the highs,” BTIG chief equity and derivatives strategist Julian Emanuel said in an interview from New York. “But the resistance to the market moving higher is very profound” for now, he said.
The S&P 500 fell about 20 percent from its record on Sept. 20 through Dec. 24, as investors became concerned about factors like decelerating global economic growth, the potential path of Federal Reserve rate hikes and U.S.-China trade tensions. While it’s since recovered by 14 percent, with another solid gain on Wednesday fueled by the Fed signaling rates are on a prolonged pause, the gauge still lies well off record levels. S&P 500 futures were up 0.1 percent at around 2,687 as of 8:11 a.m. New York time Thursday.
“The market is susceptible to positive news,” Emanuel said. “People are very clear-eyed about all the things that are out there as risk events” and “a lot of the negatives are built in,” he said.
Emanuel said some clients think there could be no growth at all in the current earnings season, and barely any growth in the economy -- much more pessimistic than BTIG’s forecasts. He also said China might be “near the trough of economic activity” and more stimulus measures are likely. The yuan’s exchange rate -- around the strongest since mid-2018 -- doesn’t suggest an imminent crisis, he said.
“A lot of the big accounts we talked to are already far enough behind their benchmark, they’ll have to catch up as stock prices refuse to decline,” Emanuel said. “We see all of that cocktail as fueling further upside.”
For the S&P 500, the crucial levels to watch are 2,600 on the downside, and the 200-day moving average of 2,741 on the upside, Emanuel said. He noted that the S&P 500 has spent a couple of weeks within that range, and when the market has slid back toward the lower end, there has been a lot of buying.
“You want to see the market going through the 200-DMA,” which could be considered a “dividing line” as to whether there’s a bull market, Emanuel said. “We would see that as very, very positive. Ultimately we do think it can get there, and more.”
(Updates headline and adds futures in third paragraph.)