Stock market investors are fixating on all the wrong things

Scott Gamm

The trade war sabre-rattling and recent stock market pullback isn’t dimming BMO Capital Markets chief investment strategist Brian Belski’s outlook on stocks.

He is sticking by his year-end price target of 3,000 on the S&P 500 (^GSPC), which represents:

  • 4% upside from the S&P 500’s closing level on Wednesday of roughly 2,884

  • A 20% gain from where the S&P 500 began 2019

  • A 0.8% drop from the S&P 500’s closing record high of 3,025 reached on July 26.

While Belski acknowledges investors’ fear when the market declines, triggering memories of 2008-2009, he thinks investors are too focused on rhetoric.

“We believe investors once again lack perspective and are feeding on fear, rhetoric, and innuendo instead of facts,” he wrote in a Wednesday note to clients.

The pullback in stocks from the aforementioned July 26 high came from worries that the Federal Reserve’s July 31 rate cut was “one and done” and the Aug. 1 tweet from President Trump, which said a 10% tariff on the remaining imports from China will take effect on September 1. These developments, along with a weakening of China’s yuan currency, which was a response to President Trump’s latest tariff announcement, led the Dow Jones Industrial Average (^DJI) to post its worst day of the year on Monday, falling 767 points.

The stock market is headed the other way.

“Investors appear fixated on headlines instead of financial statements – which, based on our work, remain in solid shape,” he wrote. “Remember, markets are probably only a tweet or a truce/accord away from reversing, particularly the longer this market weakness persists.”

Meanwhile, Belski sees “limited fundamental signs” that a recession is upon us.

“Yes, things are slowing and, yes, volatility has increased, but the fact remains that employment levels remain healthy, consumers continue to spend, and companies are still growing earnings, albeit at a slower rate,” he wrote. “These are exactly the reasons why we have been stressing stability, dividend growth, and low turnover portfolio management.”

As of Wednesday, the S&P 500 stood just 4.7% from its closing record high. The recent stock market pullback has yet to trigger a correction, defined as a 10% drop from an index’s most recent high.

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