Market Call: The Wild Bunch

Just after the S&P 500 nearly hit our year-end target of 4600 ahead of schedule on July 31, we concluded that the index might fall to its 200-day moving average, which is currently around 4200.  It could easily do so during October since it closed at 4288 on Friday. Then we see a yearend Santa Claus rally back to 4600, or close to that level.

That's because we believe that the Q3 earnings reporting season (during October and early November) will be much better than widely expected. After all, Q3's real GDP looks likely to be well above consensus forecasts. We predict that S&P 500 operating earnings per share will be at a record high during the final quarter of this year (chart). That's barring a long auto strike, a government shutdown, and surprising credit losses at the banks.