Gas, Gold and the S&P: Strategist Review

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Stocks are in the midst of a terrible month but some other areas are rallying. In this post, we’ll take a deeper look, and focus on some recent calls by strategists.

First, the S&P 500 (@ES) lost 5.6 percent of its value in the first half of October. If it holds current levels, that would be the biggest drop since August 2015. Should it continue lower the same amount in the second half of the month, the resulting drop would be pretty much the worst this decade.

That’s not to say it will. We just want to emphasize how dramatic the recent price action has been.

Most of the strategists I’ve encountered view this selloff as a buying opportunity. On Friday, J.P. Morgan’s Marko Kolanovic said big futures traders were done selling and predicted the S&P 500 would end the year at 3,000. That’s about 9 percent above Monday’s close.

Yesterday, two more bulls weighed in. David Kostin of Goldman Sachs stressed positive company fundamentals and stuck with a 2,850 end-of-year price target. Jeffrey Saut at Raymond James said the long-term bull market remains intact and expects a rebound past 3,000.

Apart from equities, gold (@GC) and natural gas (@NG) have rallied amid some bullish calls.

Back on October 7, MarketWatch spotted a trend of central banks buying gold at the quickest pace in more than three years. It also cited industry executives who see consolidation in the industry resulting in higher bullion prices.

Natural gas has also been climbing since early October, when news outlets including Forbes and CNBC cited low inventories as winter approaches. (Click here for more on some of the key stocks exposed to this sector.)

Finally, let’s not forget areas where strategists seem to remain pretty negative. First, sentiment toward China continues to weaken as the country struggles with U.S. tariffs. Semiconductors, which have a lot of Asian exposure, have also gotten some pessimistic commentary this month.

In conclusion, last week’s pullback definitely rattled nerves. But some big strategists are looking for the S&P 500 to rebound and also see new strength in gold and natural gas. Meanwhile, China and chips have grimmer outlooks.

S&P 500 with 200-day moving average.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.