Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nasdaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York