The S&P 500 is about to do something it hasn’t done in a midterm election year since Dwight D. Eisenhower occupied the Oval Office. It’s on track to end July in the green after a positive April, May and June.
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That’s a rare bullish sign, according to Jeffrey Saut, chief investment strategist at Raymond James.
“There’s only been two years in the midterm election years going back decades where the market has been up in April, May, June and July and it was only 1954 and 1958,” Saut said on CNBC’s “Trading Nation.” “Each one of those times, the market, after a soft first part of August, rallied sharply into year-end.”
In 1954, from the end of July through to the end of December, the S&P 500 rallied 16.5 percent. Over that same period in 1958, the index surged 17 percent.
Saut expects a similar pattern this year. He sees the S&P 500 regaining records set in January and ending north of 3,000. A move to at least 3,000 represents 7 percent upside from current levels.
The S&P 500 had a weak start to August in both 1954 and 1958, falling by more than 1 percent in over one week both years. Saut sees a weaker start to August this year, as well.
“The crack in the FANG stocks and the fact that the small caps have broken down in the charts and the fact that our measurement of the market’s internal energy was pretty much used up led us to believe that you could get some weakness in the first part of August,” said Saut. “The setup would be for a strong recovery into year-end.”
The S&P 500 has seen a disappointing few final days of July as Netflix and Facebook tanked post-earnings. Both tech companies are one half of the FANG stocks. It could have been worse, said Saut, and the fact it was fairly isolated is a bullish sign, too.
“While the money is coming out of the Facebooks and Twitters of the world and the Intels of the world, it’s finding other ways to invest,” he said. “A few years ago in the tech carnage, if Facebook would’ve coughed up a hairball like it did, the whole market would’ve imploded. And that just didn’t happen last week.”
Facebook has lost one-fifth of its value over the previous three sessions, beginning Thursday, while the XLK technology ETF has dropped nearly 5 percent. The S&P 500 has held up fairly well with just a 1.5 percent decline.