Stocks soared in the first three months of this year as investors bet. The US economy remains strong.
Now, here are the key discussions on Wall Street going into the second quarter. Is there room for more in the S&P 500 (^GSPC)? We are off to the best start to a year since 2019.
market The bull market has expanded over the past few months, from talk of a few stocks driving gains in major averages to investors flooding into cyclical sectors such as Materials (XLB) and Industrials (XLI). Moved. The prevailing view is that the U.S. economy will continue to grow as inflation approaches the Fed's 2% target, a so-called soft-landing scenario.
However, after five consecutive months of positive S&P, some believe the market may be due for a pullback.
“We've been making these strong moves in anticipation of what you might call a Goldilocks or soft-landing environment,” said Scott Kronert, a Citi U.S. equity strategist. “So we think we need to expect a period of digestion here to digest these gains and allow time for fundamentals to grow into price movements.”
Kronert holds 5,100 calls in the S&P 500 index and has not changed his forecast. Expectations are higher as his team awaits further confirmation that economic growth remains resilient and returns are better than currently priced in the market.
Goldman Sachs' equity strategy team is in a similar position, maintaining its year-end target for the S&P 500 at 5,200. However, given the stock's rise above current targets, the team recently considered four other scenarios for the benchmark in a research note.
The two downside cases cover topics similar to those often mentioned by persistent bears on the road. One is when market expectations for big tech companies' earnings are too optimistic, which drags down the overall market. The other is that the Fed's fight against inflation will lead to a long-term strategy of high interest rates that will ultimately stifle economic growth and cause a recession.
Goldman estimates that either negative scenario would push the S&P 500 index to 4,500. And some on Wall Street believe a downside scenario is the most likely outcome.
The group is wary of recent volatile inflation data and how that could change expectations for Fed rate cuts later this year.
Marko Kolanovic, chief market strategist at JPMorgan, said in a note to clients on February 21 that there is a risk that the story could revert from Goldilocks to the stagflation of the 1970s, with significant implications for asset allocation. “We believe that there is,” he wrote in a note to clients. The S&P 500 index will fall to 4,200 by the end of the year.
upside risk
Two other cases examined by Goldman show increases of at least 10% in the benchmark average. Further outperformance by Big Tech companies will be the driving force, further inflating the sector's already elevated valuations as AI hype delivers further gains. The other is that the market's bull run continues to expand, driven by rising earnings for S&P 500 stocks outside of mega-cap tech and a solid economic outlook that supports rising stock prices, not just those related to AI trading. It's about being there.
This will largely be an extension of the current rally in March, when energy (XLE) and materials led the sector's movements.
“We continue to be quite constructive,” said Ben Snyder, equity strategist at Goldman. “And we are advising investors to remain invested in the U.S. stock market. We just think these upside risks outweigh the downside risks, and the economy looks very healthy. Because I think there is a low chance of a recession.”
Others on Wall Street share Snyder and Goldman's opinion. Since Deutsche Bank's economics team dropped calls for a recession in early February, Binky Chadha, the bank's chief global strategist, says the equity strategy team is confident in the S&P 500's bull run this year. The S&P 500 index is hovering at 5,500, up about 5% from the previous year. current level.
According to research by Deutsche Bank, $260 billion has flowed into the stock market since May due to rising stock prices. But Chadha said these trends were “consistent with the macro data,” pointing to a shift from the consensus predicting a recession to the current outlook of positive economic growth and rising revenues.
Deutsche Bank also says: Current market risk appetite is well below levels seen in past bull markets that fell off cliffs, such as the 2021 meme stock boom.
“it's not [at] That's the level you can expect because the positioning is so stressful that people might wind up in the middle of the night for no reason just because it's too long,” Chadha said.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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