The Mother of All Bases: 35% Upside in S&P 500

I have a note taped to my desk that says: long term charts find long term trends. Analyzing long term charts is the ultimate filtration system for separating the signal from the noise. With markets consistently hitting new all time highs, now seems like a good time to review a long term chart of the S&P 500.

Zooming back 40 years on the markets, there are three distinct periods. The secular bull market of the 1980's and 1990's, the 2000 to 2013 secular bear market, and the new secular bull market marked by the 2013 breakout. 

Technical analysis of S&P 500

This helps put things into perspective when it seems daunting to put new money to work at all time highs. The dot com bubble and the great recession has created the mother of all bases in the markets. In technical analysis, the bigger (longer) the base, the bigger the move. Thirteen years of sideways consolidation has created considerable long term upside potential in the markets. 

Fibonacci extension analysis of the 2007 market peak and the 2009 low generates a $4,500 price target for the S&P 500, representing 35% potential upside from today's levels. 

What could drive this growth in the S&P 500 and enable this secular bull market to last as long as the last one? How about a growing population? The U.S. has the strongest population growth profile relative to other developed countries. Today, the most populous age segment of the U.S. is 29, which is when household formation begins (marriage, kids, home-buying etc.). What about an ageing population? Demand from baby boomers for healthcare services, procedures, drugs etc. is sure to drive earnings growth for the third largest sector in the S&P 500: Healthcare. What about the internet? We are still in the early innings of understanding the impact we will experience from the largest flywheel in human history: the internet. Globalization, Artificial Intelligence, Automation, Software, Connected Cars, 5G...all of these themes have the potential to generate significant productivity gains that can propel the economy higher for decades to come. 

Whatever the reason or narrative that investors prescribe the inevitable move higher in equities, it's important to analyze the long term price action of markets to determine the long term trend. Right now, the long term trend is up, and despite constant fears of whatever the news of the day is (coronavirus now, Iran last month...), it's important that investors keep their eye on where the puck is going and look to add equity exposure whenever we experience the next 10% market correction. 


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