Now that the S & P 500 and most major stock market indexes are at or near historic highs, expect a raft of earnings and year-end price target revisions for the S & P 500 to be coming. Why? Because new highs tend to beget new highs. The S & P at a new highs will “open the door to a 5% to 10% advance over the coming three plus months before enduring another 5%+ decline,” Sam Stovall from CFRA said in a note to clients Wednesday night. First up with an upward revision was Brian Belski at BMO Capital, who Wednesday raised his year-end S & P target to 5,600 from 5,100. Belski now has the distinction of having the highest estimate of any major strategist on Wall Street. “We are comfortable with this because we believe the market is behaving in a similar fashion to 2021 and 2023 — years where we did not give enough credit to the strength of market momentum, something we are trying to avoid this time around,” Belski wrote in a note to clients. Expect more strategists to jump on board As the market advanced into late March, many Wall Street strategists were already scrambling to raise the full year price targets they had given earlier in the year. S & P year-end price targets: upward revisions Bank of America: 5,400 from 5,000 (Savita Subramanian) Barclays 5,300 from 4,800 (Venu Krishna) BMO 5,600 from 5,100 (Brian Belski) Goldman Sachs 5,200 from 5,100 (David Kostin) Ned Davis 5,250 from 4,900 (Ed Clissold) Oppenheimer 5,500 from 5,200 (John Stoltzfus) RBC Capital 5,300 from 5,000 (Lori Calvasina) Societe Generale 5,500 from 4,750 (Manish Kabra) Stifel Nicolaus 4,750 from 4,650 (Barry Banniester) UBS 5,400 from 4,850 (Jonathan Golub) Wells Fargo 5,535 from 4,625 (Chris Harvey) Source: Bloomberg A smaller group has made no major changes. JPMorgan’s Dubravko Lakos-Bujas has the distinction of having the lowest target, at 4,200, a full 1,100 points below yesterday’s closing price. S & P year-end price targets (unchanged) Cantor Fitzgerald 4,400 (Eric Johnson) Citigroup 5,100 (Scott Chronert) Deutsche Bank 5,100 (Binky Chadha) Evercore ISI 4,750 (Julian Emanuel) Fundstrat 5,200 (Tom Lee) JPMorgan 4,200 (Dubravko Lakos-Bujas) Morgan Stanley 4,500 (Mike Wilson) Scotiabank 4,600 (Hugo Ste-Marie) Source: Bloomberg Put it all together, and the average strategist has a year-end price target of 5,095, more than 200 points below the 5,308 close from Wednesday. The median price target (half above, half below) is 5,200. And that is with all the upward revisions. That’s why it’s likely, unless there is a serious economic downturn, targets are likely to go higher. It’s more than just momentum To put it simply: markets are sniffing out higher earnings and lower interest rates. Consider the following: Earnings are rising. Estimates for Q2 are expected to show 10.6% growth from the same period last year, higher than the 10.4% estimate on April 1. Estimates usually decline as the quarter goes on because analysts are usually overly optimistic, but not this time. Earnings for the rest of the year have been remarkably stable, but the key point is that each quarter is higher and a record for S & P 500 profits: 2024 S & P 500 quarterly earnings estimates Q2: $59.46 (record) Q3: $63.49 (record) Q4: $65.08 (record) Source: LSEG Valuations (roughly 20 times forward S & P 500 earnings) are pricey but not unreasonable given the continuing strength of the economy and the prospects of AI-boosted returns. Volatility, as measured by the CBOE Volatility Index (VIX), is at the lowest level of the year. @VX.1 YTD mountain Year-to-date VIX index. Breadth is remarkable. It’s one thing for major indexes, which are mostly weighted toward market capitalization (i.e. the biggest stocks), to advance. But when more stocks are advancing than declining on a regular basis, that is what makes for great rallies. What’s been happening? Big caps, mid caps, small caps, it doesn’t matter. More stocks are advancing than declining by a wide margin. May: market advance broadens (advance/decline line) S & P 500: near new high S & P Mid Cap: new high S & P Small Cap: highest since Dec. Source: Factset “Recently, the expansion in breadth and demand has been most significant, offering further proof of a likely sustainable intermediate-term uptrend,” Stovall told clients.
