The US markets are closed today for labor day on September 2, but the rest of the world is open for business. There are signs developing throughout the global markets which would suggest that stocks still have further to climb in 2019, and could reach their all-time highs once again.
The big news happened last night when their manufacturing PMI came in at 50.4, showing the sector moved back into expansion. The reading was an improvement from last months reading of 49.9.
Shanghai Comp. (FXI)
The Shanghai composite rose overnight by more than 1%. The index appears to be breaking out rising out of a falling wedge and is now challenging resistance at 2,920. It seems that the index may be getting ready for a move higher towards 3,065.
Germany is also showing signs of improvement, with its DAX index creating what appears to be a reverse head and shoulders, a bullish reversal pattern. It would indicate that the index may be on its way back to 12,200.
Also, the UK FTSE appears to have formed a double bottom and is above resistance at 7,280. It potentially setups an advance to 7,520.
S&P 500 (SPY)
The positive change from bearish to bullish in some of the critical international markets could surely be a positive sign for our markets here. As markets rising globally could add a needed layer of support, helping the S&P 500 to finally break out and increase above resistance at the 2,930 to 2,940 resistance zone. Another positive is the RSI and advance/decline lines are steadily trending higher and showing signs for breaking out.
Also, notice on these two broader-based ETFs, the SPY, and IWM, are showing volume levels have been steadily declining in recent week. A sign that the number of sellers is thinning out.
Based on my current estimates for the S&P 500 of $179.79 for 2020, I can still get the S&P 500 around 3.050 based on 17 times estimates, and around 3150 based on 17.5-time estimates. Much will depend on how long rates stay low. Should interest rates remain below 2% for the balance of the year, the PE ratio could slowly approach 17.5.
But more important, especially as we enter the last few months of the year, investors should begin to turn their attention to 2021 earnings. For now, those estimates continue to remain healthy. Currently, my model is suggesting earnings growth of 10.2% in 2021 to $198.11. It gives the index a PE ratio of about 14.7. At 17 times 2021 estimates, the S&P 500 could rise to around 3,370.
Heading into the first trading day of September, if the global market begins to show signs of improvement, and earnings estimates can remain healthy, then the S&P 500 should hold itself together and push back towards its all-time highs.
I will, of course, continue to monitor for you as alway.
Enjoy your day off.