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Dow Futures Drop But a Blistering 9% Jump Awaits, Predicts Analyst

Last Updated September 23, 2020 1:58 PM
Ben Brown
Last Updated September 23, 2020 1:58 PM
  • Dow Jones Industrial Average (DJIA) futures fell 136 points overnight after back-to-back gains.
  • Wall Street analyst who nailed the March bottom sees another 9% upside in the stock market as momentum continues.
  • Traders await a fresh round of jobless claims data, expected to come in at 1.8 million this week.

The stock market looks set to open slightly lower on Thursday. Traders are taking a breather after a monster rally this week. Dow Jones Industrial Average (DJIA) futures were down 136 points this morning.

This is likely just a cooling-off period, according to Brian Belski of BMO Capital Markets. This morning he re-iterated his bullish position on stocks and sees another 9% upside from here .

The best thing we’ve seen in the last couple of weeks is that we’re starting to see a broadening out. So value stocks, small cap stocks, and not just technology stocks lead.

Despite signs that traders are getting greedy, there’s still room to run. Belski says he’s “not prepared to say [stocks are] overbought yet.”

Dow futures cool after blistering rally

U.S. stock futures are taking a much-need break overnight after yesterday’s gains. Dow futures  contracts were 136 points (0.52%) lower at 5.59 am ET.

Dow Jones DJIA stock market futures chart
Dow Jones Industrial Average (DJIA) futures slide after yesterday’s monster session. Source: TradingView

S&P 500 futures  were down 0.55% while Nasdaq Composite futures  dropped 0.33% after closing near record highs in yesterday’s session.

Stock market could go 9% higher from here

Belski was one of the few investors to nail the March bottom. In fact, he wrote a note to clients on March 23rd – the absolute bottom of the trough – predicting a 40% – 50% bounce back.

We’re almost there, and we stand behind our 3,400 target by the end of first quarter of 2021.

His S&P 500 target implies another 9% rally for stocks from here, and a new all-time high for the index. Of course, Belski warned that stocks “are not linear” and we are likely to see a handful of drawdowns and breathers before we get there.

S&P 500 stock market
Belski re-iterates his 3,400 target for the S&P 500, which would mark a new record high. Source: TradingView

Some investors have been “way too bearish”

Belski also dismissed the the chorus of investors who repeatedly call for a deeper stock market correction. He said those investors, specifically macro and quants, have “quite frankly been too bearish.”

This market rally, he claims, has been powered by more than just Fed stimulus. Fundamentals matter, and American companies have the edge:

US stocks are best positioned in the world.

And there’s plenty of money left to push the market higher. As Belski pointed out, investors still have billions of dollars of cash sitting on the sidelines waiting to deploy.

80% probability the Dow is lower next year?

Across the street at Citibank, analysts are not so optimistic. Chief equity strategist Tobias Levkovich said their models point to an overwhelming likelihood that stocks are lower next year.

Our sense from our panic-euphoria model, which is flashing euphoria again is suggesting almost an 80% probability that markets will be down in the subsequent 12 months as opposed to up.

Citi euphoria chart
Citi’s ‘euphoria’ chart suggests an 80% chance of downside in the coming 12 months. Source: Citi

John Stoltzfus at Oppenheimer Asset Management admitted that stocks were definitely taking a “leap of faith” at these levels. But that this recovery isn’t “uncharacteristic for markets that are coming out of a significant market crash.” It looks a lot like 2009 and the start of a new bull market, he added.

Stock market braces for new wave of jobless claims

All eyes are on this week’s jobless claims data again today. We’re expecting a further 1.8 million claims , taking the total well above 45 million since the crisis began.

However, the more important number to watch is ‘continuous claims.’ Now that many are back to work, continuing claims paints a more accurate picture of the economy. This figure is calculated by the number of people actually receiving unemployment checks. Continuing claims are trending down, suggesting that we’re over the worst of the economic fallout.

Elsewhere today, the European Central Bank (ECB) will announce its interest and deposit rate decision. We’re expecting no change to the rate, but an increase in the bond purchase program.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.