Will the S&P 500 Finish At an All-Time High?
Wall Street Strategists Scramble to Adjust S&P 500 Targets Amid Unprecedented Market Highs
As we entered 2024, the consensus among Wall Street analysts was for modest gains in U.S. stocks following a robust performance in 2023. However, the market has exceeded expectations, continuing its upward trajectory bolstered by significant advances in mega-cap technology stocks. Last week, these gains propelled the three major indices to multiple record highs, painting a promising picture for the future.
Notably, May saw the headline consumer price index (CPI) inflation remain static for the first time in nearly two years. Core prices, excluding food and energy, rose by just 0.2%, a figure slightly below expectations and a seven-month low. Consequently, year-over-year core inflation fell to 3.4%, its lowest point since April 2021.
The S&P 500 has surged over 15% this year, propelling all three major U.S. stock indices—S&P 500, NASDAQ, DOW—to record highs. This rally, driven by favourable economic data, has alleviated inflation concerns and sparked speculation that the Federal Reserve may lower interest rates later this year. The recent rally in the S&P 500 has been predominantly driven by the exceptional performance of AI technology stocks. Notably, Nvidia which has contributed significantly, accounting for 34.5% of the market capitalization gains within the S&P 500 year-to-date. Nvidia surpassed Microsoft to become the world’s most valuable company, closing with a market capitalization of $3.22 trillion. Over the past year, AI has been recognized as the primary catalyst propelling market growth.
This record-setting surge has surprised many of Wall Street’s top strategists, leading to a rush of revised year-end targets for the S&P 500. Notably, at least 11 firms have raised their forecasts for the large-cap benchmark index for 2024. For instance, BMO Capital Markets and Deutsche Bank have recently updated their year-end targets to 5,600 and 5,500, respectively.
Brian Belski, chief investment strategist at BMO Capital Markets, has revised his year-end target for the S&P 500 from 5,100 up to 5,600, citing enduring market momentum. Belski likened recent market behaviour to that seen in 2021 and 2023, highlighting the importance of recognizing market strength. Even Morgan Stanley, traditionally one of the more bearish firms, has revised its stance. Mike Wilson, the firm’s chief U.S. equity strategist, now predicts the S&P 500 will hit 5,400 by the second quarter of 2025, marking a significant shift from his earlier forecast of a drop to 4,500 by the end of this year.
Despite these upward revisions, Wall Street retains a cautious outlook due to the unpredictable interest-rate environment. Andrew Greenebaum, senior vice president of equity research product management at Jefferies, emphasised that Wall Street’s prevailing pessimistic view stems from the Federal Reserve’s uncertain rate trajectory.
Investors have adjusted their expectations regarding Federal Reserve rate cuts this year, now anticipating one cut instead of nearly seven as previously thought. While market pullbacks are anticipated, the strength of the current rally suggests that any significant downturns will likely occur from higher levels, providing a more elevated base for future recoveries.
Historically, when the S&P 500 climbs more than 8% in the first five months of the year, it tends to gain an additional 7% by year-end 70% of the time. This trend supports the optimistic revisions currently being made by Wall Street strategists.
Conclusion:
Wall Street’s expectations for 2024 stock market returns continue to ascend, fueled by strong market momentum and recalibrated expectations for Federal Reserve policy. While the Fed has maintained rates, officials have raised their median expectation for the federal funds rate at the end of 2024 from 4.6% to 5.1%, suggesting only one rate cut later in the year. In their post-meeting statement, Fed officials noted “modest further progress” on inflation, marking a shift from their previous “lack of further progress” stance on May 1.
At Parity Wealth Managers, we remain bullish, anticipating continued global market rallies. However, we recognise the potential for pullbacks, as current market dynamics are largely driven by data and Federal Reserve communications. Despite potential short-term volatility, we maintain our confidence in the markets’ long-term growth prospects. We continue to monitor the market and macroeconomic conditions closely, including the current global elections, and we remain vigilant and adaptable to ensure our clients are well-positioned to navigate the evolving market landscape.
Remember, political elections should not dictate your investment strategy. Political views are for the voting booth, not for your long-term financial planning. We continue to advise our clients to stay vigilant and adapt as necessary, ensuring they are well-positioned to capitalise on the evolving market dynamics.
