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Weighing 4Q Market Headwinds

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    Sam Stovall of S&P Capital IQ gives his outlook for the fourth quarter.

  • Duration 4:10
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Our right to downbeat third quarter earnings season is here but well lackluster results -- -- headwind.

That is strong enough to -- markets down in the last few months of the year here to weigh in -- Sam Stovall chief equity strategist at S&P capital IQ.

CM and the market is vastly empire today -- up another 118 points you think that we could go up another seven to 12% from today's level.

-- -- yeah I think that's a possibility what we do is we look to history to get an idea of the other laying of the ground work if you will.

And then overlay that with the economics fundamentals and the tactical picture.

To see whether history is likely to.

Rhyme or forget the words and right now our feeling is that we could be seen in the market move up.

Hope to between 1535.

And maybe even 16100.

Before the beginning of 2013.

But this market continues to defy logic -- we're looking at an economy that's falling apart at the seems I mean just today.

There's more talk about are we in the midst of another reception and we just have received the data yet.

Yet stocks continued to move higher I know a lot of it is because of QE1 2342.

Infinity but do you think that's enough to hold it.

Well I think what we find it is that prices tend to lead fundamentals.

So not that were heading toward recession we just don't don't know it yet but.

Maybe we're heading toward recovery and we just don't know it yet so I think that's why people are gonna be focusing so closely.

On the third quarter reporting season even -- the bar set so low I like to say that it's actually underground because.

We're expecting a near 2% decline in year over year operating growth.

But the question is will we be getting that near 10% growth in Q4.

And a seven to 13% gain for all of 2013.

That's the real question so what would trip you up and make you less bullish.

Well I think that if we did not get that manufacturing report that came out today.

And that we saw that the US was slipping -- more deeply.

Or get getting closer to recession so I certainly have -- -- -- and I am going to be yeah weighing this information very closely.

And if we do end up seeing more and more data that come out -- say we're heading toward recession or that companies come out and say that they are slashing.

Our guidance that would be a concern.

-- -- -- -- to the individual investor at home I was reading over the weekend that volume and trading and things like E*Trade the discounted brokers online.

Plunged 37%.

In August -- the individual investor.

Is really getting out even more than we already thought they were out there getting out even more and are leaving the trading to the professionals to the algorithmic -- -- Is that a sign of things to come is -- a mistake what what how what would you say about that.

Well my first thought would be it's August it's -- summertime months hello my question would be is that sequential percent change or year over year.

But at the same time I think when you look to almost any kind of a sentiment indicator.

Whether it's the American Association of Individual Investors or others you find that many individual investors are continuing to move away from equities.

Toward fixed income and if they are willing to dip their -- at all -- are going in the hybrid funds which have exposure to equities and fixed income.

And sometimes that can be a very good contrary indicator and everybody moves to one side of the boat maybe it's time to move to the other.

No absolutely -- I mean.

Stocks have moved much higher in people who have stayed in the market right now at least the last few months have made money to begin make individual investor has missed out.

Well I think they've missed out but I don't think it's too it's too late to get in one of the things that I look at is something called the rule of twenty.

Basically you look at the price to earnings ratio for the S&P 500.

Yeah add to -- the rate of inflation if it equals twenty then we're at a fairly valued market.

Well what it's actually showing right now is that we still could rise by another 10% just to get to a fair value situation and that's before we get an improvement.

In macro economic numbers that could happen as we head into 2013.

Sam -- up thank you so much for coming -- we appreciate your time.

My pleasure.

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