Financial Professionals


Push-Pull Continues


The S&P 500® Index continues to trade in a directionless pattern for the month of July (Figure 1.1). The competing forces of continued robust corporate earnings and absent fiscal policy have created a "push-pull" dynamic. Pulling back further on the view highlights the sideways pattern with which the Index has traded since March 1 (Figure 1.2). On the morning of March 1, the S&P 500 opened at 1328.64, slightly above its 1325.84 close on July 20.
Keep in mind, although currently sideways, the S&P 500 (Figure 1.3) is still trading in the upper third of its range from September 1, 2010. Technicians view that price action as having a high probability to reaccelerate once a catalyst emerges. Three potential catalysts remain: Corporate Earnings, Fiscal Policy Resolutions, and China Growth Reacceleration. The evidence currently exists to support a continued "push-pull."
PUSH (Favorable conditions for S&P 500 Appreciation) 

  • Currently, 73 of S&P 500 companies have reported earnings.
  • Of the 73 reporting, 64 reported per-share profits exceeding estimates.
  • Tech heavyweights Apple (AAPL), IBM, and Google (GOOG) have provided concrete evidence that "technology spending" remains a tailwind.
  • Financials such as JP Morgan (JPM) and American Express (AXP) confirm an improving "credit quality" tailwind.

PULL (Unfavorable conditions for S&P 500 Appreciation)  

  • The European Union continues to struggle with a resolution on a response to the inevitable Greek default.
  • The absence of a resolution response fosters tremendous uncertainty for the capitalization needs of financial institutions in the event of a default.
  • The U.S. debt ceiling debate remains unresolved and it is uncomfortably close to the August 2 deadline.
  • The debt ceiling debate is the front-and-center headline for prime time networks and is having an extremely negative effect on consumer spending habits and the desire to take capital market risk.


  • The "hard landing vs. soft landing" China debate remains without resolution. Estimates for August 1 China PMI were revised lower to 48.9, signaling the first contraction figure since March 1, 2010.
  • The Chinese yuan (Figure 1.4) continues to appreciate. It now is trading at its highest level since 1994. Continued appreciation is a favorable condition for global growth.

Figure 1.1:  S&P 500 Index Price Action, July 2011
1356.48 High - July 7
1295.92 Low - July 18
1325.84 Close - July 20
1326.74 July Average — as of July 20
Figure 1.2: S&P 500 Index, February 28, 2011 to July 20, 2011

Source: Bloomberg
Figure 1.3:  S&P 500 Index, September 01, 2011 to July 20, 2011

Source: Bloomberg

Figure 1.4:  China Yuan, March 2005 to July 2011

Source: Bloomberg

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.