Optimistic Forecasts

One of Wall Street's most optimistic forecasts for the S&P 500 is based on the belief in the continued dominance of "U.S. exceptionalism" in global markets throughout the year.

Société Générale's strategists raised their year-end target to 5,500 from 4,750, indicating a potential additional increase of just over 5% from the current levels.

Manish Kabra, head of U.S. equity strategy, and Charles de Boissezon, global head of equity strategy, emphasised that while the best returns might be behind us, the outlook remains positive. They cited various U.S. macroeconomic themes driving this sentiment, including the "reshoring boom" in industrials, the artificial intelligence surge in the Nasdaq-100, and improving credit conditions benefiting U.S. financials. Despite widespread market optimism, Kabra and de Boissezon view this as rational, given the ongoing profit growth setting new records for the S&P 500.

The Federal Reserve's decision not to alter its rate cut plans further bolstered market sentiment, with the S&P 500 poised for another record. Société Générale's strategists noted two distinct profit cycles in the first half of 2024: one driven by the growth stocks of the Nasdaq-100 and another by S&P 500 stocks excluding these high performers.

Looking ahead, they revised their earnings per share (EPS) growth projections for 2024 and 2025 upward, reflecting their positive macro outlook. However, they cautioned that matching the remarkable gains of recent months might be challenging, given that Fed rate cuts are already factored into market expectations.

Various risks to their stock forecast were highlighted, including the possibility of the 10-year Treasury yield rising above 5% or retail gas prices surpassing $4 a gallon. Conversely, they outlined upside potential, particularly if the market mirrors the exuberance seen during the tech bubble of the late 1990s.

Several other Wall Street banks have also revised their S&P 500 targets upward this year, indicating continued bullish sentiment tempered with cautious optimism.

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