Watch for 1,400 on the S&P 500. If we trade down below 1,400 and especially if we close below that level, stocks should accelerate to the downside. We are still at multi-year highs for stocks, with valuations and economic growth slowing. We have elections coming up, as well as the Bush tax cuts set to expire, and the spending cuts coming at the beginning of 2013. All of these issues will weigh heavily on investors minds as they balance their potential for further gains versus their potential to give back the paper profits they currently have.
One quick comparison of note is the current U.S. stock market performance with that of China. China has annualized GDP growth of 7.6% versus our most recent reading of 1.7% growth. China’s major index, the Shanghai Composite, is trading around 2,000 right now. That is down from more than 6,000 at the peak in 2007; it’s only 1/3 of it’s peak value. In contrast, again with growth that is a fraction of China’s, the S&P 500 was just at 1,475; only 90 points from its all-time high close of 1,565. This gives me great pause!