S&P 500 at 600: Is It Possible?

| About: SPDR S&P (SPY)
This article is now exclusive for PRO subscribers.

Can anyone be coldly analytical about the stock market these days? We are in the middle of a nasty market - the S&P 500 is down 43% from its peak from 14 months ago, and many stocks are down 50-70% from their respective peaks.

During bear markets, many stocks go down a lot more than markets for no fundamental reason. There are plenty of stocks, domestic and foreign, that are down more than their fundamentals justify and that will not go out of business in this cycle (or any cycle in the foreseeable future).

The reason people are scared to buy stocks now is the fear that the stocks they choose go down a lot more from here and it is a reasonable fear, but this is not the best way to make investment decisions. Quite a few market pros think the S&P 500 could go to 600 before this bear is over (I do not). SPX 600 is an unknown, it may happen, or it may not. But, what is known is that many stocks are now at much lower prices than they were a year ago, or they are at similar prices to what they were five, or even ten years ago. Again, this information can be easily attained by looking at a chart. Not only are many of these names at lower prices, some of them are also much cheaper (lower prices as potentially nominal and cheaper in terms of common valuation metrics).

If today you know that a specific stock has a much lower price, has a cheaper valuation, and is unlikely to go out of business, and you have some cash on hand, it probably makes sense to buy a little now. I'm not saying a bottom is in and I'm not saying get 100% invested right now, but if you raised cash, have not bought anything while the S&P 500 has had a 7, 8 or 9 handle and you have not sworn off stocks, you'll probably get a price you'll be happy with a few years from now.

Could the S&P 500 go down to 600? Is that a real possibility? From Friday's close, 600 would be a 32% drop. Yes, that could happen, but the probability of a 32% drop after a 43% drop is quite low. The focus here is on what is known now versus what is feared for in the future.