What’s Next? A Correction, Not a Bear Market, Says Stovall

History suggests that we’re only in for a correction—that is, a 10% drop, according to the CFRA sage.



The sinking stock market did a remarkable turnaround Monday, with the S&P 500 shifting from a 4% tumble to finish up 0.3%. But many Wall Street observers, such as Morgan Stanley’s chief US equity strategist, Mike Wilson, think it will fall even more.

OK, then how low can it go? That’s the question that Sam Stovall, CFRA’s chief investment strategist, asked in a research note. No more than 10%, which is the definition of a correction, he wrote.

Consulting market history, Stovall said the index has always had a market decline in the calendar year following an annual gain of 20% or more. That sure fits right now. The S&P 500 rose just under 27% in 2021. Further, all first-half slides were transformed later into a full recovery, returning the market to its starting point, he found. Plus, he added, the average drop from first-half selloffs was 10%, no more.

“In the end, history says (but does not guarantee) that the S&P 500 will likely join the Nasdaq in correction territory before its P/E gets trimmed to a more realistic level,” Stovall admonished, referring to the price/earnings ratio.

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Stovall also partly conducted his analysis using market technicians’ methodologies, specifically Fibonacci retracement levels (FRLs), which are percentage declines based on the advance from an important low.

Using the recent low from the pandemic’s outset, March 23, 2020, of 2,237, the index climbed all the way to the Jan. 3, 2022, high of 4,797. And by technicians’ figuring, that “points to an impending decline to the 4,193 level for a peak-to-trough tumble of 12.6%,” Stovall stated. That, in turn, “would place it squarely in the correction camp,” he concluded.

The CFR strategist also calculated that, if the market kept on falling, the logic of FRLs dictated that it would reach “a mild bear market” of minus 20.4%. Other levels below that were 33.0% and 53.4%. But Stovall didn’t seem to believe that things would get that bad.

“We think the coming week’s market action will be very telling as to the severity of the overall decline,” he wrote.

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Danish, Canadian Pensions Pump More Money Into Renewables

ATP is investing in what will be the EU’s largest geothermal plant, as CDPQ raises its stake in Énergir owner Trencap.



Renewable energy investments have been the recent targets of the $141 billion Danish pension fund ATP and Canada’s $311.6 billion Caisse de dépôt et placement du Québec (CDPQ). ATP is investing in what will be the European Union’s largest geothermal plant, and, in a separate deal, CDPQ boosted its majority stake in Trencap, which owns natural gas and renewable energy company Énergir.

The Danish pension fund said it is now invested in geothermal-based heating company Innargi, which is owned by privately held Danish investment company A.P. Møller Holding. Innargi is planning to build and operate a 110 megawatt (MW) geothermal power plant in Aarhus, Denmark, that will extract energy from deep within the soil. The plant is expected to begin supplying heat in 2025 and to be fully developed by 2030.

”Geothermal energy holds enormous perspectives. It can be used in the heat supply instead of coal, gas, and biomass,” Bo Foged, CEO of ATP, said in a statement. “This investment is in line with our climate ambitions as announced in autumn 2021 in connection with COP26. We are convinced that this investment will provide good returns for the members, and the importance for the green transition is obvious.”

Although ATP didn’t disclose how much it invested in Innargi, it now owns 37% of the company, while NRGi owns 20%, and AP Møller Holding owns the remaining 43%.

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Meanwhile, across the Atlantic, Quebec’s CDPQ raised its stake in Trencap with development capital fund the Fonds de solidarité FTQ. Trencap is the 100% owner of Énergir through holding company Noverco. The deal increases the pension fund’s ownership stake in Trencap to 80.9% of its shares, while the Fonds de solidarité FTQ maintains a 19.1% share. In June, CDPQ led a consortium that agreed to buy the minority stake it did not already own in Energir for C$1.14 billion (US$910.8 million)

Énergir, which is the main distributor of natural gas in Quebec, also produces electricity through joint ventures from wind energy. It produces electricity in the US from hydraulic, wind, and solar sources, as well.

CDPQ is also a majority owner of Invenergy Renewables, which develops, owns, and operates sustainable energy generation and storage facilities in the Americas, Europe, and Asia. Earlier this month Invenergy received a $3 billion investment from private equity firm Blackstone.

Last year, CDPQ announced a climate change strategy that it said it will use as a guide to reach a net-zero portfolio by 2050, which includes a plan to triple the value of its low-carbon asset portfolio compared with 2017 to C$54 billion by 2025.

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