S&P 500 : Valuations remain attractive
By Rodolphe Steffan
It seems undeniable that the U.S. economy is getting stronger and resistant to the global economic downturn. The non-farm payrolls were marked by a solid return on U.S. unemployment to its lowest levels since 2008 and figures of real estate were in a recovery. Therefore, analysts and traders continue to see upside potential to Wall Street, based on traditional valuation methods. Thus, the price earnings ratio (PER) to a 12-month horizon is around 13.5 compared to 14.8 in 2007. The SP500 should soar up to 1650 points in order to match its historical average which means an increase of 7% above its current level. Finally, equities remain attractive because of increasing dividends while interest rates stagnate near their lowest. Investors remain convinced that this increase does not look like a bubble and there is no sign of major euphoria that often marks the end of a rally.
A lot of publications is expected this week : durable goods orders and new home sales and GDP on Thursday.
The dynamics of the S&P 500 remains strongly bullish in daily data above 1545 points, which also refers to the 20-day moving average. After having reached 1565 points (historical closing of 2007) the index entered a slight consolidation as investors are monitoring European issues. We await the exit of the trading range (1545-1565 points) in daily data to take bullish positions and target new historical highs towards 1600.
This strategy will be implemented using the E-mini S&P 500 FUTURE (code: ESXXXX) on the CME futures market.