Tuesday, February 18, 2014

Stock Market: Why Soros Will Lose His Bet Against the S&P 500

(Drivebycuriosity) - George Soros is betting big against the U.S. stock market. "Soros Fund Management has doubled up a bet that the S&P 500 is headed for a fall", reports MarketWatch (marketwatch). According to this service the famous hedge fund manager doubled "a bearish bet on the S&P 500, to the tune of $1.3 billion".

I reckon chances are high that Soros will lose his bet. He is betting against the odds. History shows that in the long run the stock market is gaining around 7% annually on average (ritholtz  ritholtz). On the average every day is in the green, though just marginally. Dips, corrections & crashes are anomalies and just aberrations from the long term upwardly trend. And they are unpredictable. You cannot predict when they will occur, nor how long they will last and how deep the stocks fall.

I reckon that the rally (bull market) that started in spring 2009 is still alive and will continue for a while. Since summer 2011 the rally has been very smooth, all dips have been short and moderate. I believe this will go on for the coming months.

In the long run the rising stock market reflects climbing company profits (driveby). This earnings season (company reports for Q4 2013) has been strong. About 74% of those companies that have posted results have beaten estimates for profit and 64% have exceeded sales projections, writes  Bloomberg (bloomberg). Companies in the S&P 500 are exceeding analyst revenue forecasts by the most since 2012, a sign rising consumer demand is fueling economic expansion (bloomberg).

The news from the macro front also are encouraging. Recently we learned that the U.S. service sector (ISM services), that covers around 2/3 of the economy, gained speed in January. We also heard that Europe´s manufacturing is getting better (ISM manufacturing).

I believe that rising company earnings & an advancing global economy will fuel further gains on the stock market and the S&P 500 could climb to 2,000 points and more through end of this year. Bad perspectives for gamblers like Soros.

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