The next three months may not be at all calm.
CFRA’s Sam Stovall warns that the market is entering one of the most difficult periods of the year.
“The third quarter is by far the weakest of the four quarters of the year — an average growth of only 0.5%,” the firm’s chief investment strategist told CNBC’s Trade Nation on Monday.
Stovall builds its business on the basis of data dating back to 1945. In other quarters, in his opinion, the S & P 500 sees an average return of 2% to almost 4%.
Its analysis is carried out two days before the beginning of the second half of 2020 and while the number of cases of coronavirus infection is growing.
“The biggest risk is the number of cases of the re-spread of the Covid virus due to the cascading effect it will have for corporate profits and the uncertainty that it will present for the November elections,” Stovall said.
Despite an unprecedented recession in 2020, Stovall says that, in his opinion, a weaker historical trend will continue this year. He claims that the market rollback, which began on June 8, has not yet ended.
“We stumbled all the time. We had a rollback of 7%, ”he said. “Somewhere in the third quarter, we end this correction with a bit deeper sales.”
Its S & P 500 is 2,850, which means another 7% drop due to Monday’s close.
But the earning season can buy time with investors.
According to Stovall, earnings estimates in the second quarter are so low that they should outperform the street and serve as a short-term bullish driver. Thus, July may become a stronger month for the market, when August and September will be the most problematic.
However, his forecast is not all doomed and gloomy.
Stovall expects the market and economy to recover successfully from viral consequences and seasonal problems.
“In twelve months, I think we will be in a new high territory,” Stovall said. “As soon as we really see that the economy is improving, as soon as we get the justification of profit forecasts for 2021 for a 30 percent increase in corporate profits, I think the market will be able to work even higher.”
According to forecasts by Stovall, in a year the S & P 500 will be at the level of 3435, which is 1% more than in February.