Even after its strongest rally since the early days of the dot-com boom, the S&P 500 index still has room to grow through the end of the year, according to JPMorgan Chase & Co. trading desk.
Derivatives analysts at the bank said the most popular options trade is betting the U.S. equity benchmark will hit 6,200 to 6,300 this month, implying a further advance of between about 3% and 4% before the end of the year, based on Friday’s close around 6,032.
“We remain tactically bullish for the remainder of the year given the positive macro environment, earnings growth and the Federal Reserve continuing to support markets,” Global Market Intelligence chief Andrew Tyler wrote in a note to clients on Monday. “We think it’s reasonable to play on the market’s momentum and see a low pullback potential through mid-January.”
Tyler’s team recommends a greater tilt toward value and cyclical companies such as banks, automakers, transportation companies — excluding airlines — and the Russell 2000 small-cap index. As for technology and telecommunications, they say to stay invested in technology stocks so called. Seven magnificent, data centers and semiconductors.
Wall Street strategists are generally upbeat about the outlook for the rest of the year — a time that generally tends to be good for stocks.
Trading desk in Goldman Sachs Group Inc. estimates the S&P 500 will be near 6,300 before early 2025, in line with the level indicated by JPMorgan’s trading desk. The last two weeks of December and the first two weeks of January are by far the best four weeks of the year, with an average return of 2.6% since 1928, according to Scott Rubner, Goldman Sachs director of global markets and strategist.
But this time is hardly ordinary, as the S&P 500 has already posted its best first 11 months to a year since 1997. That has left it on track to post consecutive annual gains of more than 20% for just the fourth time in the past century, according to the analysis from Deutsche Bank AG. The outperformance has pushed the index to high valuations at more than 22 times forecast 12-month earnings, compared with an average reading of 18 over the past decade.
The rally, however, is likely to face some pressure in the middle of next month before fourth-quarter earnings start and the inauguration of President-elect Donald Trump, which will shift focus to policies – such as tariff hikes – that cast uncertainty on the economic outlook. It has already sent bond yields higher on expectations that his policies, including an attempt to deport US workers illegally, will add to inflationary pressures.
But that didn’t dampen the mood on Wall Street. Major banks’ forecasts for 2025 show broad expectations that the stock market will extend its rise: Goldman Sachs forecasts, Morgan Stanleyand Bank of America corp. falling around the 6,600 line, with estimates by Deutsche Bank and Yardeni Research going up to 7,000.
Those reaching for a historical analogy to the current zeitgeist should look to the mid-1990s, according to JPMorgan’s Tyler. It was another time the Fed pulled off a so-called soft landing by tightening monetary policy without plunging the US into recession. It was also marked by elevated interest rates and excitement over technological breakthroughs.
– With the help of Natalia Kniazhevich, Jan-Patrick Barnert and Jessica Menton.
