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SPX forecast for 24.08.2020

August 24, 2020

August 24, 2020

SPX forecast: S&P 500 believes in the futureDmitri Demidenko

Fundamental SPX analysis for today

The equities of the US technology companies meet the expectations

The best explanation why the stock market signals a V-shaped recovery of the US economy, but the US GDP doesn’t return to the trend is “Main Street is the now, Wall Street is the future.” For the first time since 1970, the share of the five largest companies in the total [S&P500][1] capitalization has exceeded 25%, including the US technological giants: [Apple][2], [Amazon][3], [Microsoft][4], [Alphabet][5], and [Facebook][6]. Their success is a bet on the future. And that was always so. Five decades ago, the top five largest corporations included IBM (computers), AT&T (telephony), General Motors (car-making), Exxon (oil), and Kodak (cameras).

**The share of the five largest companies in the S &P 500

capitalization **

![LiteForex: SPX forecast for 24.08.2020][7]

Source : Wall Street Journal

Unlike in 1970, the present leaders are very similar—they bet on selling online rather than in ordinary shops. The bet works out perfectly amid the lockdown and the US financial aid programs. As the US economy reopens, the traditional values returns, the fiscal stimulus ends, and the equities of the US technology companies are more likely to depreciate. So, it won’t be surprising if the US domestic data will send the [S&P500][1] down.

A typical example is trading on August 18, when the shares of 332 companies dropped in value, 168 increased, and stock index eclipsed the previous high set in February only because the capitalization of the winners exceeded the market value of the losers by 2.5 times.

The Tech stocks benefited from not only social distancing policies but also from the Fed’s massive injections of liquidity, followed by the drop in the Treasury yields to all-time lows. Hence, the improvement of the US economic state and a more hawkish tone of the Fed will increase the Treasury yields, encouraging investors to sell the securities of the US top 5 companies. It will weigh on the [S&P500][1].

There is another factor, which can send the US stock market down. It is the US presidential election. According to the polls, Joe Biden has a better chance to win than Donald Trump. The Democratic candidate also promises to support the US economy by raising taxes on corporations and wealthy households, thereby increasing federal revenues. I should note that the richest 10% of Americas now own 87% of stocks, the share increased from 82.4% in 2009. A hit on them will hit the US stock market.

Dynamics and structure of the US stockholders

![LiteForex: SPX forecast for 24.08.2020][8]

Source : Wall Street Journal

Therefore, the risk of the [S&P500][1] drawdown will much increase if the price breaks out the support zone of 3330-3335. However, I do not expect the correction to last long. The pandemic will make society more socially isolated than earlier. The global debt will grow to 128% of GDP, according to the IMF. Furthermore, the economies will take a longer time to recover compared to the previous global crisis amid the technologies, the population aging, and other factors. It will make the central banks to hold the bond yields low. So, the drop in the stock index value to 3265-3280 and 3220-3230 is a reason to open long-term longs.

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Price chart of SPX in real time mode

![SPX forecast: S&P 500 believes in the future][11]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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