Major stock indexes are approaching record highs in the five months leading up to 2024.
Wall Street doesn’t think the bull market is over, either, as earnings and economic growth prospects have risen steadily throughout the year.
Three equity strategists tracked by Yahoo Finance have raised their year-end targets for the S&P 500 in the past two weeks. The median target for Wall Street’s benchmark index is currently 5,250, above the median target of 4,850 as of Dec. 1. 30, according to Bloomberg data. The maximum street target has also been raised to 5,600 from 5,200 earlier this year.
“The current environment is basically what the bulls wanted, and they’re getting it,” Oson Kwon, U.S. and Canadian equity strategist at Bank of America, told Yahoo Finance. ” he said. “It’s basically a soft landing.”
Kwon explained that although hotter-than-expected inflation data were released at the beginning of the year, there was no indication yet that price increases were accelerating again. Meanwhile, other indicators suggest the economy is slowing but strong, allaying fears that rapid growth could spark another spike in inflation. Essentially, Kwon said, this fueled the soft-landing narrative that Wall Street bulls were hoping for this year.
Brian Belsky, chief investment strategist at BMO Capital Markets, said the availability of this data has led to important changes in the market. Markets are now pricing in about two rate cuts this year, down from a peak of about seven at the start of the year, according to Bloomberg data. . This is in line with the Fed’s latest forecast that officials support two to three rate cuts this year.
“We underestimated the strength of market momentum, especially given that investor expectations and the Fed’s policy guidance are essentially converging after the wide divergence that existed at the beginning of the year. ,” Belsky said in the investigation. Memo for May 15th.
Atmosphere around Wall Street and the New York Stock Exchange in Lower Manhattan Financial District, New York City, June 14, 2020 (zz/STRF/STAR MAX/IPx) (zz/STRF/STAR MAX/IPx)
In that memo, Mr. Belsky raised his year-end goal from 5,100 to 5,600 employees, a Wall Street high. He noted that history tells us that given the level of stock price strength at the beginning of the year, further upside is likely. According to Belsky’s analysis of historical data, in a year like this one in which the S&P 500 index rises more than 8% in the first five months of the year, there is a 70% chance that the index will end the year rising more than 7%. Become.
But Belsky and other strategists who have raised their stock forecasts for this year warned that any gains in stocks likely won’t come without further rebound. Belsky noted that the 5% pullback in April was minuscule compared to the 9% or more typically seen in the second year of a bull market.
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However, given the rally in stocks to begin the year, “if a more severe pullback were to occur, it would likely occur at a higher index level than previously expected,” Belsky said, adding that higher prices for the S&P 500 index after the rebound. He said it would provide a landing point.
“Strong way of speaking”
Going into this year, bullish Wall Street strategists were adamant that the key to this year’s market rally was a continued recovery in corporate earnings. And so far, it’s working well. Profits for the first quarter of 2024 increased by 6%, the highest growth rate in about two years.
So far, the revenue drivers have not changed significantly. As with Nvidia’s explosive quarter last Wednesday, tech company earnings are driving much of the S&P 500’s earnings growth. But strategists believe there are still signs of expansion towards the end of 2024.
Kwon said the first phase of the AI cycle has already begun, as major technology companies such as Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) are investing in growth technologies, and Nvidia (NVDA ) pointed out that the profits of companies such as ) are increasing. . But with recent gains in sectors such as utilities and energy, the rewards are starting to widen.
“We don’t think this is just an Nvidia problem anymore,” Kwon said. “The scope of things is expanding. . . . to power, to commodities, to utilities, things like that.”
In a recent research note, Kwon noted that Nvidia drove 37% of the S&P 500’s earnings growth over the past year. Over the next 12 months, that proportion is expected to be just 9%.
Binky Chadha, chief equity strategist at Deutsche Bank, also believes other areas of the S&P 500 will contribute to solid earnings growth through the end of the year. He recently raised his target for the S&P 500 index to 5,500 from the previous 5,100 target, but told Yahoo Finance there is clear “upside risk” to the target.
As an example, Chadha points out that while people are “talking bullish,” the stock’s position hasn’t changed much in the past three months. Deutsche Bank’s positioning measure shows investors are “overweight” in stocks, but not to the “extreme” levels seen in 2021 and 2018.
For Chadha, this suggests there may be room for more running for the stock market, especially given that he feels the consensus isn’t currently pricing in the outperformance of the U.S. economy.
Chadha emphasizes that expectations for the U.S. economy have actually just shifted from an upcoming recession to normal or below-normal growth trends. If the U.S. economy grows faster than expected again this year, with some believing this consensus could rise further and lead to a productivity boom in the U.S. workforce, Chadha said. He said it would not be difficult for the S&P 500 index to reach 6,000.
“We’ve come a long way, but it seems we’re not quite there yet,” Chadha said.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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