Insight: Why the S&P 500 could hit 3400 within a decade
I couldn’t have picked a worse day to interview Craig Johnson, longtime bullish technical analyst for Piper Jaffray.
It was last Thursday, when the Dow Jones Industrial Average lost 317 points, and fears about Ukraine, Gaza, and Argentina’s default on its debt were paramount.
When we spoke late that afternoon, Johnson sounded a bit harried but otherwise unfazed. Just two days before, his team had published a new report, “2K and Beyond/ All Systems Go.” And on Thursday he wasn’t giving any ground.
True, the S&P 500 SPX +0.00% had just broken below its 50-day moving average, signifying short-term weakness. (It has since gone even lower.) But that already happened twice this year, in February and May, and stocks kept moving higher, Johnson said.
“These sell-offs burn themselves out,” he added.
So, until there’s a deeper correction that drives the S&P below longer-term support levels around 1850, Johnson is giving this market the benefit of the doubt.
“The secular bull market is just starting,” he declared.
And not just any secular bull market, he said, but “a big, long, powerful secular bull market” that could last “multiple years in length and [earn] a multiple of your money.”
Raging bull
If you’re ready to throw rotten tomatoes at your computer screen, you’re not alone. Two years ago, Johnson was in a small, besieged bullish fraternity along with Laszlo Birinyi, Jim Stack, James Paulsen of Wells Capital Management, and fellow technician Mark Arbeter, then of S&P.
Clients called him crazy, and when this column first wrote about Johnson’s 2000 S&P call, the comments were downright contemptuous.
And yet, here we are two years later, and the S&P peaked at 1987.98 in mid-July. Johnson predicted the index would end 2013 at 1850. It closed at 1848.36.
Johnson may well have been lucky, but it was an astonishing call by any measure. The few investors who listened to him rather than the gold bugs, hyperinflationists and doom-and-gloomers of every stripe have made a boatload of money. The S&P is up more than 40% since then.
But Johnson’s not done. One reason he thinks the market is heading a lot higher for a lot longer is that pessimism is still pervasive.
“People are scared. They still hate this market. They think it’s all manipulated by the Fed,” he said.
Trading volume is still weak, he said, and “it doesn’t feel like there’s a lot of individual investors participating today.”
That’s actually true: The small number of hyperactive traders at discount brokerage firms obscure the bigger picture that the vast majority of individuals are still too spooked to buy stocks. Study after study confirms that. Institutions aren’t exactly euphoric, either.
If Johnson is right, stocks will rally for a long time. He thinks we’re in the kind of secular (extreme long-term) bull market we saw in both the 1950s and the 1980s. Each of those runs lasted much longer than a decade.
