Analysis and Outlook
I often provide macroeconomic analysis on Seeking Alpha, but today I want to discuss the S&P 500 ETF Trust (NYSEARCA:SPY) and why I believe the current correction is just the beginning. Investors should consider reducing their allocation to SPY to avoid potential losses and wait for a return to previous highs.
The Current Correction
Many analysts attribute the current correction in SPY to seasonal factors. September historically has the worst performance for SPY, but the downward trend actually began in August and continues. Relying solely on historical trends is not enough to make accurate predictions, and it is important to analyze macroeconomic data and fundamentals.
One important factor to consider is the central bank interest rate. When inflation became a problem, the Fed raised rates to cool the economy, which led to a decline in annual inflation. However, consumer confidence has recently declined, indicating potential economic downturn. Consumers are also saving less, suggesting a weaker consumer market. Additionally, the equity risk premium for SPY is low compared to other asset classes, raising concerns about future returns.
Outlook and Conclusion
While there are potential upside risks, such as positive economic data or central bank actions, there are significant challenges that cast doubt on the double-digit EPS growth consensus for FY2024. Weakening consumers, low equity risk premium, and rising interest rates make it difficult to be bullish on SPY. Therefore, I reaffirm my Sell rating for SPY in the medium term.
Thank you for reading!