S&P 500: Three Possible Scenarios

The S&P 500 will likely end the year at 850 and post an average earnings per share of about $55 this year, says Scotia Capital strategist Vincent Delisle.

After running a best, base and worst case scenario over the figures, Mr. Delisle said there was a 60% chance the S&P 500 would end the year at this level, based on a 2.6% contraction in U.S. gross domestic product.

He said there was a 20% chance the U.S. economy would contract 0.9% in 2009, as predicted by the U.S. Federal Reserve, which would likely result in the S&P 500 reaching 1,050 with an EPS of $65.

He said:

In reviewing our three different scenarios, we would use the Fed’s forecast as a “best-case” outcome. If the Fed is right, then this market is a screaming buy. Admittedly, the Fed’s outlook is likely to be revised lower as the year progresses, but as optimistic as their scenario may seem now, we would note that bullish scenarios always look the most outrageous in stormy periods.

Mr. Delisle said a worst-case scenario would likely see an extension of the recession into the first half of 2010, implying worsening conditions throughout most of 2009. He said there was a 20% chance GDP would decline by something in the order of 3.5%, which would likely cause the S&P 500 to slump to 550 with a total bear market loss of 65% and EPS of $45.

“The worst case scenario would materialize if stress conditions which prevailed last September/October were to revive,” he said, citing surging credit costs, the credit market shutdown, and the plunge in ISM manufacturing data to below 30.

Comments

[Robotto]

At first, I thought the author was trying to be funny with the title of this article. After all, the market could only go up, down, or stay flat; there are no other logical possibilities.

2009 Feb 25 06:47 AM

[Big-P]

Blah, Blah, Blah. Enough of these math geeks and their bogus idea about market direction. Only people like me know where the market is headed next-- because we're the ones moving it.

-Big-P

2009 Feb 25 08:59 AM

[kelm]

Analyses like these are important from a brainstorming possibilities and scenarios standpoint to help identify when things are heading one way or another and adjust ones trading accordingly.

Their predictive value is zero.

2009 Feb 25 09:47 AM

[Maxe Paul]

So we have 550, 850 and 1050. There is 0% chance of anything else! We have 3 x 300 targets that cover all the bases. And people pay money for such simplistic targets like this?

An 8 year old could give these targets.......seriousl...

2009 Feb 25 10:53 AM