Oppenheimer Asset Management’s chief investment strategist John Stoltzfus believes the S&P 500 is poised to hit new highs later this year with the price-to-earnings multiple of the index expanding to 23.1. With this, his year-end target for the S&P 500 sits at 5,900 points, which suggests the broad market will see a 5% gain from the current price level. This is the third time Stoltzfus has boosted his target for the S&P 500 index in the last seven months, and the latest positive revision comes at a time when traders are betting on the Fed to turn dovish in the coming months with inflation continuing to trend lower.
Up, Up, and Up
The stock market entered a bull run in 2023 with inflation showing signs of cooling and the Fed adopting a less aggressive stance on rate decisions compared to 2022. The S&P 500 Index surged 25% last year, and the performance has been stellar so far this year with the index registering another 17% gain through July 8. The tech-heavy Nasdaq Composite is up 24% this year with tech names continuing to benefit from expectations for rate cuts later this year. In addition, the stellar financial performance of global AI leaders such as Nvidia Corporation (NVDA), Alphabet Inc. (GOOG), and Microsoft Corporation (MSFT) has also added to the enthusiasm behind tech stocks. The strong economic rebound from the virus-induced recession and better-than-expected corporate earnings in the post-pandemic era have also played a key part in this stock market rally.
Are There Any Signs Of a Slowdown?
Wall Street analysts are divided on the outlook for stocks. Although Oppenheimer’s CIO is bullish on stocks, Bahnsen Group CIO David Bahnsen believes that investors need to be wary of a potential market crash as the projected upside from here is expected to come from an expansion in valuation multiples, not from strong corporate earnings growth. According to him, a market correction is inevitable as stock prices need to decline sharply to bring back valuation levels closer to the historical average. Consumer spending is already decelerating on the back of dwindling savings, which is a clear sign that economic growth will slow down in the coming months. The percentage of consumers with a bank balance of less than $4,000 has increased from 40% in 2021 to 58% today, which is an early signal of a notable deceleration in spending in the future. Housing market activity also remains at lackluster levels because of high interest rates. According to S&P Global, the American economy will grow just 2.5% this year compared to the 3.1% annualized growth reported in Q4 2023. This slowdown may keep stocks under pressure in the coming months.
Both Dilantha DeSilva and Stocks.News have positions in Microsoft. Stocks.News has positions in Alphabet.
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Dilantha is a former buy-side equity analyst who now contributes to Seeking Alpha, GuruFocus, TipRanks, and ValueWalk. He is the founder of Beat Billions, a premium investment research subscription service on Seeking Alpha’s Marketplace. He has appeared on CNBC and Bloomberg to discuss stock markets and the global economy.