There Will Be More S&P 500 Highs, But Bigger Dips, Says a Faithful S&P 500 Bull

Can the S&P 500 continue its upward momentum after April’s dip? With retail sales and CPI data already released and futures climbing, Wednesday offers hope.

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Investors sticking with the SPDR S&P 500 ETF Trust (SPY) have enjoyed a 10% gain this year. Those holding since the S&P 500’s late October low of 4,117.37 have seen a 27% increase.

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Adam Kobeissi of The Kobeissi Letter advises investors not to lose confidence in stocks now. He has been advocating for buying the S&P 500/SPY since the October low. In his Oct. 30 weekly letter, Kobeissi predicted a "simple healthy technical correction" rather than a major crash, targeting 4,220 on the index, which materialized in early November.

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“We turned bullish in late November or early December and bought every dip,” he told MarketWatch this week.

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Kobeissi’s letters have consistently maintained a bullish outlook on the S&P 500, even during the April pullback, which he viewed as a "much-needed technical correction." Although he initially reduced his 5,300 target earlier this year, he has since reinstated it.

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“Our rationale was that AI hype is too strong to fight, risk appetite is returning, and although markets became too dovish in January, it was likely to drive equities higher in the short to medium term,” he said.

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Kobeissi believes the market will continue to reach record highs but warns investors to prepare for “larger swings to the downside.” He expects these dips to be buying opportunities.

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“It’s too soon for the Fed to cut rates. However, Big Tech has performed well this earnings season, which we shouldn’t fight,” he said.

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“It’s better to follow the trend and wait for it to break rather than attempting to call an exact top,” Kobeissi advised. “Higher highs followed by higher lows indicate an uptrend, while lower lows followed by lower highs suggest a downtrend.”

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The catalyst for larger dips could be the market's eventual realization that rate cuts aren’t imminent or if tech loses momentum. “Right now, markets are in a state of denial,” he noted.

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Expect those larger dips to be buying opportunities into the summer, though data could shift this outlook. “The market has had every reason to fall this year, but it keeps rising. That’s not a strength you want to fade,” he said.

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Regarding the resurgence of meme stocks, Kobeissi doesn’t see a significant impact on the S&P 500 but believes it underscores strong risk-on investment appetite.

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Stock futures are climbing, and Treasury yields are falling following fresh data. Gold prices have jumped, while the dollar is weakening. Oil is near nine-week lows after the International Energy Agency cut its 2024 oil-demand forecast.

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April consumer prices rose 0.3%, below forecast, while core prices rose as expected. Retail sales increased slightly less than expected by 0.3% in April, and the Empire State manufacturing survey weakened further in May. A home builder confidence index is due at 10 a.m.

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Federal Reserve officials are scheduled to speak, including Richmond Fed President Tom Barkin at 10 a.m., Minneapolis Fed President Neel Kashkari at noon, and Fed Governor Michelle Bowman at 3:20 p.m.

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After two strong days of gains, GameStop and AMC Entertainment initially rose but are now down, with AMC disclosing plans to issue 23.3 million shares. CNBC’s Jim Cramer advises, “sell, sell, sell.”

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In other news, OpenAI co-founder and chief scientist Ilya Sutskever is leaving the company, months after losing his board seat.

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Finally, Secretary of State Anthony Blinken played a Neil Young tune in a Kyiv bar, boosting local morale as Ukraine counters a new Russian offensive.

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