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Wall Street optimism grows as S&P 500 surges

Wall Street optimism grows

The main U.S. stock indices continue to show growth consistently, yet there is no indication of reversing the prevailing trend. For several weeks, many analysts have been advising caution, even as the S&P 500 appears to be heading towards record levels again after the Friday session. Despite numerous pessimistic analyses, a significant number of Wall Street banks are becoming more optimistic.

Institutions such as Bank of America, Deutsche Bank, and others still see substantial potential in the S&P 500 index. This optimism is noteworthy considering the challenging economic environment.

Despite generally unfavorable conditions for the stock market, such as already high valuations and the risks associated with the current interest rate environment, the U.S. stock market continues to perform exceptionally well. High valuations can often lead to concerns about overvaluation and potential corrections, while interest rate risks can affect borrowing costs and investment decisions.

Nevertheless, the market's performance remains robust. It seems that even the continuous postponement of the first interest rate cut by the Federal Reserve, due to persistently high inflation in the U.S., is not dampening shareholder sentiment. Investors appear to remain optimistic despite these headwinds, focusing on the underlying strength of the economy and corporate earnings.

At the beginning of January, Bloomberg expected an average of nearly seven interest rate cuts in 2024. However, market participants now anticipate only two rate cuts from the Federal Reserve. This significant change in expectations indicates a shift in market sentiment regarding monetary policy. The absence of rate cuts has not hindered the current rally in the stock market.

In light of this strong market performance, American banks are becoming more confident, raising their year-end targets for the S&P 500. This increased confidence from financial institutions suggests a belief in continued economic resilience and growth, despite the lack of anticipated rate cuts.

Recently, three stock market strategists have increased their year-end targets for the S&P 500. Following these adjustments, the median target on Wall Street for the benchmark 500-stock index is now 5,250 points, significantly above the December 30, 2023 level of 4,850 points. The highest target on Wall Street has also risen from 5,200 points at the beginning of the year to 5,600 points.

Concerns about the U.S. economy falling into recession due to rapid interest rate hikes have proven to be exaggerated, leading to what is essentially a soft landing. This shift in targets reflects growing optimism and a reassessment of economic risks by market experts, who now see a more favorable outlook for the remainder of the year.

Bullish strategists on Wall Street predicted that this year’s market recovery would rely on a rebound in corporate earnings, which has proven true. Earnings increased by 6% in the first quarter of 2024, the fastest pace in nearly two years. This growth was primarily driven by gains in the technology sector, especially NVIDIA's massive profits. The first phase of the artificial intelligence cycle was evident in the earnings growth of companies like NVIDIA, supported by significant investments from tech giants such as Alphabet, Amazon, and Microsoft.

However, growth is now spreading to other sectors like utilities and energy, indicating a broader economic recovery. This diversification of growth across different sectors suggests a more balanced and sustainable economic expansion.

Meanwhile, a Deutsche Bank strategist believes that the S&P 500 could reach 6,000 points. He emphasizes that expectations for the U.S. economy have recently shifted from an inevitable recession to normal or lower-level growth. This change in sentiment reflects a more optimistic outlook for economic stability and growth.

If this consensus continues to strengthen and the U.S. economy grows more than expected this year, which some attribute to increased labor productivity in the U.S., it is possible, according to Chadha, that the S&P 500 could reach 6,000 points. This ambitious target underscores the potential for significant market gains if economic conditions continue to improve and productivity gains drive further growth.



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