After a brief recuperation in April, US stocks ushered in a new breakthrough in May. The Dow successfully crossed the 40,000 mark, the S&P 500 rose to 5,300 points, and the NASDAQ rose more than 7% this month. The three major stock indexes all set new historical records at the same time, reaching a new milestone.

Although Federal Reserve officials remain cautious on the issue of interest rate cuts, the strong performance of US stock companies and optimism about interest rate cut expectations under the downward trend in inflation have further raised the risk appetite of the market and injected new impetus into the rise in the stock market.

At the same time, Morgan Stanley's famous “big bears” also chose to back the bulls. Wall Street is becoming more optimistic about US stocks, and they have once again raised the target price of the S&P 500 index, reaching a high of 5,600 points.

Are US stocks starting a new market? The crazy influx of hot money

• The economy and inflation have both cooled down, and hopes for interest rate cuts have been revived

Inflation, which has continued to be high since this year, has finally begun to show signs of turning. Before the market on Wednesday local time, the US Department of Labor disclosed the consumer price index for April, with a nominal CPI annual rate of 3.4%, in line with expectations; the more critical core CPI annual rate fell further to 3.6%, in line with expectations, while falling to its lowest point since April 2021.

The leading indicator of the US economy, the US Chamber of Commerce Consumer Confidence Index for April recorded a monthly rate of -0.6%, falling for the second consecutive month after falling 0.3% in March. “Another drop in data confirms the weakness of the future economic situation,” said the senior manager of the Business Cycle Index of the Consultative Council. Deteriorating business conditions and weak new orders have exacerbated this decline, she said. Although it no longer indicates an imminent recession, it points to serious resistance to future growth.

Economic headwinds and falling inflation have reignited the “flame” of interest rate cuts. According to the latest data from the CME Federal Reserve Watch Tool (FedWatch Tool), the possibility that the Fed will cut interest rates for the first time in September is currently about 64%.

• Hot money is pouring into US stocks! Capital inflows hit a two-month high

According to LSEG data, investors made a net injection of 5.78 billion US dollars into US equity funds last week, the largest weekly capital inflow since March 20. US large equity funds absorbed about US$5.38 billion, the largest weekly net inflow since March 27. Large-cap funds attracted around $1.05 billion, but net outflows from small and medium cap funds amounted to $817 million and $191 million, respectively.

Against the backdrop of a resurgence in interest rate cuts, the three major stock indexes began a new round of gains since late April. As of last week, all 11 sectors of the S&P 500 index are once again above the 200-day moving average, which represents medium- to long-term trends.

Regarding market prospects, Goldman Sachs believes that investors' enthusiasm has been largely reflected in the market, but this does not mean they should sell. “Because the fundamental background is still 'very good', the upward risk is currently greater than the downside risk.”

“Gushen” changed its voice and changed its voice a lot! Damo raised the target price of the S&P 500 by 20%

The US stock market has repeatedly reached new highs, causing Wall Street to once again scramble to raise the target price of the S&P 500 index. Among them, what is most noteworthy is that the well-known bears at Morgan Stanley also “surrendered” and backed the bulls. He raised the 12-month benchmark target value of the S&P 500 index by a large margin of 20%.

Prior to that, Wilson had been optimistic about US stocks for a long time, and had always insisted on the 4,500-point S&P 500 forecast, further indicating that the potential increase in earnings was limited, making it probably difficult to support the valuation of US stocks.

He said that the profit growth of US stock companies will be better in the next two years, which reflects “as operating leverage is restored (especially in 2025), US stocks will experience healthy, single-digit revenue growth and profit margin expansion in these two years.”

In addition, BMO's chief investment strategist Brian Belski raised the S&P 500 target to 5,600 points at the end of the year, which is currently the highest target point among mainstream Wall Street investment banks, and there is room for an increase of about 5.5% from the current latest closing price of 5,308 points. He believes that the recent upward trend in US stocks will continue for the rest of the year.

Deutsche Bank, another major bank that strongly advocates for US stocks, believes that the strong performance of US stocks in the Q1 earnings season and that the US macroeconomic economy continues to improve, which will help support a further rise in stock market valuations. The bank raised the target price of the S&P 500 index at the end of the year to 5,500 points from 5,100 points previously.

“We believe that the earnings cycle provides many supporting factors,” Deutsche Bank strategist Binky Chadha and others wrote in the report. “Although we may not achieve all growth this year, we believe that market confidence in the economy will continue to recover before the end of this year, thus supporting the price-earnings ratio of the stock market.”

Optimistic about the US stock market, how to choose an ETF?

Investors who are optimistic about the US stock market can also pay attention to index-linked ETFs. As early as 1993, Buffett began recommending index funds. This is the only type of investment that Buffett has publicly recommended. Buffett once said, “By regularly investing in index funds, an amateur investor who doesn't understand anything can often beat most professional investors.”

The following are US stock indices and broad-market ETFs. Only some targets are listed for investors' reference:

Dow Jones Index and leveraged ETFs:$SPDR Dow Jones Industrial Average Trust (DIA.US)$,$Proshares Ultra Dow30 (DDM.US)$,$ProShares UltraPro Dow30 ETF (UDOW.US)$;

S&P 500 Index and leveraged ETF:$SPDR S&P 500 ETF (SPY.US)$,$Proshares Ultra S&P500 (SSO.US)$,$Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL.US)$;

NASDAQ and leveraged ETFs:$Invesco QQQ Trust (QQQ.US)$,$ProShares UltraPro QQQ ETF (TQQQ.US)$;

Large-cap ETFs:$Vanguard Large-Cap ETF (VV.US)$,$Vanguard S&P 500 Value ETF (VOOV.US)$.

The higher the ratio, the greater the return on leverage, and the corresponding greater the risk, so investors need to pay attention to risk.

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