S&P500 Index Found
Wall Street's high mark for stock market returns in 2024 continues to rise. BMO Capital Markets chief investment strategist Brian Belski recently increased his year-end price target for the S&P 500 to 5,600 from 5,100, noting persistent market momentum. Belski's new target reflects about a 7% upside from Monday's close.
Market Momentum and Projections
"We are comfortable with this because we believe the market is behaving in a similar fashion to 2021 and 2023 — years where we did not give enough credit to the strength of market momentum, something we are trying to avoid this time around," Belski wrote in a research note.
Belski is the latest in a series of Wall Street strategists to raise their 2024 stock market forecasts. The high-water mark entering the year was 5,200, with the median strategist target at 4,850. However, earnings growth has surpassed analyst expectations, and US economic growth has surprised to the upside. Ten of the 15 strategists tracked by Yahoo Finance now have targets at or above 5,200.
Investor Expectations and Fed Policy
The surge in stocks has coincided with a repricing of investor expectations for Federal Reserve interest rate cuts. Initially, investors anticipated nearly seven rate cuts this year. However, with inflation not declining as quickly as hoped, expectations have adjusted to roughly two cuts, aligning with the Fed's most recent Summary of Economic Projections (SEP).
"It has become clear to us that we underestimated the strength of the market momentum, particularly considering that investor expectations and Fed policy guidance have become essentially aligned versus the significant disconnect that existed at the beginning of the year," Belski noted.
Historical Analysis and Market Trends
Despite the optimistic outlook, Belski acknowledges potential volatility. Historical analysis suggests the market likely hasn't experienced its worst drawdown of the year yet. The average pullback during the second year of a bull market is 9.4%, while April's recent pullback only reached just over 5%.
Given the index's rally off the April lows, Belski is "now convinced that should a more severe pullback happen, it will likely occur at higher index levels than we previously anticipated," providing a higher landing spot for the S&P 500 after a rebound.
Furthermore, history indicates that strong performance at the beginning of the year often leads to continued gains. In years where the S&P 500 rallies more than 8% in the first five months, the index gains more than 7% to finish the year 70% of the time.
"Based on historical trends, performance this strong to start the year tends to continue through year end," Belski concluded.
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