We last wrote about index provider and credit rating agency S&P Global Inc (NYSE:SPGI) in June. The company had just withdrawn its profit guidance for the year due to rising interest rates discouraging prospective borrowers. A weak debt market translates into less business for SPGI. The share price quickly dipped to under $312 on that news and analysts rushed to downgrade the stock.
A single glance on SPGI ‘s chart, however, convinced us that a notable recovery was instead likely to occur before the bears return. Here is how Elliott Wave analysis showed us the stock’s path four months in advance.
The chart above revealed a clear impulsive decline from $484 to $312, labeled 1-2-3-4-5 in wave (a). The five sub-waves of wave 1 were visible, as well. According to the theory, this pattern meant that SPGI was officially in a bear market. On the other hand, a three-wave move in the other direction follows every impulse. Here, we thought “wave (b) can lift the price to around $400 a share before the bears return.”
Unfortunately for the bulls, the story wouldn’t end there. Once wave (b) was over, “targets below the $300 mark would make sense” in wave (c). S&P Global’s strong industry position allows it to deal with one or two weak years with no problem. But it couldn’t tell us where the stock price was headed in the shorter term. For that, we needed Elliott Wave analysis.
And it worked like a charm. Wave (b) developed as an a-b-c correction and reached the vicinity of $400 in mid-August. Two months later, SPGI fell below $300 on October 10th. That selloff from $395.80 to $297.71 so far can also be seen as a five-wave impulse already, marked 1-through-5.
What Lies Ahead for SPGI Stock? It’s Complicated
Now, the question, as always, is what to expect next. There are two most likely possibilities. The first one sees the entire drop from $484 as a complete (a)-(b)-(c) correction. In that case, we can expect the uptrend in SPGI to resume and eventually reach a new all-time high.
The alternative is that the decline from the end of wave (b) at $396 is only wave 1 of an even bigger wave (c). If the market picks this scenario, a three-wave recovery in wave 2 should occur before the downtrend resumes in wave 3 of (c) to new lows.
The bad news is it is impossible to tell which of these two paths is the stock going to take. The good news is that they both suggest a rally to about $340 is around the corner. Once there, we would simply have to watch from a safe distance and let the market make up its mind.
On the one hand, the Elliott Wave structure is clear enough to declare the 2022 bear market in SPGI over. On the other hand, the stock trades at a 2023 P/E ratio of 22, which is still quite expensive, especially if the recession gets worse.