It's tough being a Wall Street bear these days.
The S&P 500 index has climbed nearly 15% this year and clinched 30 record-high closes. Strong corporate earnings and the artificial intelligence helped drive stocks higher at the start of this year, despite a slew of hotter-than-expected inflation reports that fueled concerns the Federal Reserve would be slow to cut interest rates in 2024.
Then, fresh data in May revealed last week that inflation is cooling again and getting closer to the Fed's 2% target. The central bank at its June policy meeting held rates steady and penciled in one cut for 2024. After waffling over whether the Fed would ease monetary policy at all in 2024, traders are now betting on two to three cuts, according to the CME FedWatch Tool.
The new backdrop of cooling inflation coupled with rate cuts on the horizon is prompting investors to up their bullish wagers. Goldman Sachs on Friday raised its year-end target for the benchmark index to 5600 from 5200, citing a strong outlook for corporate profits. That would be a 2.3% advance from Monday's close.
Evercore ISI raised its price target to 6,000 for the S&P 500, a reversal from its previous, more gloomy 4,750 target. That higher level would be a 9.6% jump from Monday's close.
"The backdrop of slowing inflation, a Fed intent on cutting rates and steady growth have supported Goldilocks," wrote Julian Emanuel, a senior managing director at Evercore ISI, in a Sunday note. "The rally has room."
The market has also been distinguished by uncharacteristic calm. Stock sell-offs have been short and shallow. The S&P 500 has had its longest stretch of trading days without a 2% or more decline since February 2018, according to SoFi data as of June 12.
While low volatility sounds like a positive, it's not without danger. It suggests that investors are taking on more risk in their portfolios due to an overly optimistic view and could be caught flat-footed if the tide turns.
There's no shortage of risks that could unnerve markets in the coming months. Much of the S&P 500 index's returns are tied to the mega-cap tech Magnificent Seven stocks, leaving the market dependent on just a handful of names to continue its monster run.
Stocks could also wobble leading up to the US presidential election in November. Some investors warn that despite encouraging economic data, a recession could still be in the cards for 2024 or next year.
Despite its more bullish baseline target, Goldman Sachs warned that the S&P 500 index could end the year at 4,800, a 12.3% drop from current levels, if economic growth data turns sour and markets price in higher odds of a recession.
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