Stock markets worldwide continue to feel the chill on a number of fronts this week, with some analysts now predicting that a long-term bear market is now on the horizon.
Not likely, says John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, who claims that based on still-strong economic fundamentals, the Standard & Poor 500 should hit the 3,000 mark sometime this year.
Trade issues continue to dominate the headlines this week, as China announced plans to place tariffs to 128 different products from the United States in retaliation to President Donald Trump’s recently imposed trade restrictions. The fear of a looming trade war is now joined with concerns over impending regulation hitting tech giants like Facebook and Google, which have added to the current malaise in the markets.
On Monday, the S&P 500 Index closed at its lowest level since February, now down by more than ten per cent from its recent January high.
“The mood remains decidedly bearish, and there is certainly no shortage of reasons to be fearful,” said IG chief market analyst Chris Beauchamp to the Globe and Mail.
But not everyone is seeing gloom and doom in the current downturn. Stolzfus says that even with all the political and regulatory threats, the fundamentals still look good.
“Essentially, we don’t see any deterioration coming from the economic data,” said Stolzfus to BNN. “Thus far, we’ve had six consecutive quarters of earnings growth. The last quarter came in at 14.3 to 14.6 per cent growth on earnings on the back of 7.5 per cent revenue growth. And mid-cap and small-cap growth rates were even better.”
“So, the trend looks good and the dollar is still cheap, which makes multi-nationals highly competitive abroad. But there are these issues within trade but we think that there’s a likely resolution ahead to this,” says Stolzfus.
The investment strategist argues that while the current market slump is an expected reaction to the many political and geopolitical concerns on offer today, the 3,000 mark for the S&P is still a reasonable projection.
“We think it’s only natural what the market is doing — it’s sorting itself out. In the meantime, focus on the shifts that do have risks in the near term,” Stolzfus says. “We put that [3,000 point projection] out in December. There were only two strategists on the Street that had that. I think right now, there are more strategists with a 3,000 target for the S&P 500 for this year than there are ants at a summer picnic.”
As for the worries about today’s tech giants, Stolzfus says that history bears it out that they will find a way to thrive even within tighter regulatory frameworks.
“Usually what happens with innovation is that eventually it gets to be sort of like a big brother and government has to come in to regulate,” he says. “[Companies] are fairly quick not necessarily to circumvent but to find a way to accentuate where their earnings are coming from, and profitability is not killed as you would think in the way that some people are projecting.”
“Just think of railroads, think of utilities, think of the automobile industry, think of broadcasting: all regulated today but at one point when they were new, they weren’t,” he says.