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The stock market is up nearly 20% so far this year, officially ending last year’s bear market.
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Few on Wall Street were expecting the rise except for Fundstrat’s Tom Lee, Carson Group’s Ryan Detrick and market veteran Ed Yardeni.
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Here’s what the three strategists expect from the stock market in the second half.
The stock market the year-to-date rally of nearly 20% surprised just about everyone on Wall Street – except for Fundstrat’s Tom Lee, Carson Group’s Ryan Detrick and market veteran Ed Yardeni.
The three strategists saw something that most others did not, mainly that the reduction in inflation and avoiding a recession would help stocks exit the 2022 bear market and hit new 52-week highs.
Wall Street is starting to catch on, with many strategists raising their year-end S&P500 price targets. So far this year, a dozen have raised their price targets, but they are still too low, according to data compiled by Bloomberg.
In January, when the S&P 500 was around 3,900, the 2023 year-end average target was just 4,050. Fast forward to today, and the average has fallen to 4,245, which is a 7% decline from current levels.
But Lee, Detrick and Yardeni don’t see it that way, and they become even more optimistic than their peers. Here’s what they expect in the second half.
1. Tom Lee of Fundstrat
Early July, Lee raised its S&P 500 target to 4,825 from 4,750, implying a rally of around 26% over the full year.
“The rise in stock prices over the past 9 months is the start of a new bull market. This new bull market will be driven by advances in AI and the Fed’s successful efforts to rein in inflation,” he said, adding that valuations are “undemanding” if you exclude mega-cap tech stocks.
“We believe the P/E should rise as companies are seen as resilient and we are at the start of a new EPS cycle,” Lee added. “AI could be the start of a supercycle. And Nvidia’s first-quarter results were the “aha” moment. The timing makes sense. AI also solves the problem of inflation. By the way, doesn’t this justify the rise of FAANG? Not as a bubble but as a sign of the emergence of this cycle.”
2. Ryan Detrick of the Carson Band
Detrick recently raised his S&P 500 price return expectation to a range of 21% to 25% from an earlier estimate of 12% to 15%.
“We see the potential for equities to continue to outperform bonds and potentially hit new all-time highs with more good news,” he said.
A resilient economy, with no recession in sight, means consumers can keep spending as the Fed continues to lower inflation, according to Detrick. And that means corporate earnings, the main driver of stock prices, should continue to hold up. Also helps business profits is a weakening US dollar, he underlined.
“The foundation of the global economy remains strong, and we expect anything thrown at it to do little more than cause some near-term volatility,” Detrick said.
3. Ed Yardeni of Yardeni Research
Earlier this month, Yardeni updated its S&P 500 forecast to 5,400, the aim being to be achieved by the end of 2024. This represents a potential upside of 19% compared to current levels.
Yardeni’s optimism is supported by his estimates for S&P 500 earnings per share, which could reach $270 in 2025. Those estimates, combined with his forecast of 5,400, imply a forward price-to-earnings ratio of 20x, roughly in line with today’s forward P/E of 19.5x.
He argued that the economy entered a “continuous recession” last year which slowly impacted different industries, but a “continuous recovery” has begun which is expected to further fuel the rise.
“A merger would most likely be led by the S&P 500/400/600 information technology stock indices, all of which are poised to hit new highs,” Yardeni said.
Read the original article at Business Intern
